In the early days, many investors and rivals criticized Amazon for not being able to make profits. Just ten years ago, in 2014, the computer giant was not making a profit.
After making a record $20 billion in profits in the fourth quarter of 2024, almost double the $10.6 billion from the same time last year, Amazon is showing signs of being a strong competitor that its peers should be concerned about. With strong profits and a large amount of cash, Amazon CEO Andy Jassy is committed to competing in the AI infrastructure race.
Jassy told analysts on an earnings call Thursday that Amazon will spend around $100 billion or more on capital expenses in 2025, up at least 20% from 2024. Most of this year’s capital spending will be used to support Amazon’s extensive investments in artificial intelligence. This is important for the company as it competes in what Jassy described as a major technology change and chance since the internet.
Amazon is spending a lot of money on new projects as its competitors in cloud services and AI increase their spending too. Alphabet, Google’s parent company, announced in its latest earnings call that it plans to spend $75 billion on capital expenses in 2025.
This profitable version of Amazon makes money through strong profits from different companies it has created alongside its online shopping. AWS, a rapidly expanding cloud computing company, made a strong operating profit of 37%, which is $10.6 billion, during the fourth quarter, from a total sales of $28.8 billion.
Amazon’s advertising business has also helped increase the company’s profits. Analysts think that the advertising business makes more profit than the cloud computing side of the company. However, Amazon does not provide specific profit information for the advertising business. Amazon’s most popular type of ads, called sponsored product ads and difficult to differentiate from regular merchandise listings, increasingly blanket the search results that users see when they look up a product on the site. Amazon has worked hard over the past year to win big brand advertising funds for TV by offering video ads in its Prime Video streaming service.
Keeping costs low has also been beneficial. In 2024, Amazon’s operating costs went up by just 6%, while its total revenue rose by 11%.
Powering The Flywheel
In the fourth quarter, Amazon’s income increased by 10 percent compared to the previous year, reaching over $187 billion. This matched what analysts expected and likely means Amazon has outperformed Walmart in quarterly sales for the first time. Walmart will report its earnings this month and is expected to make about $180 billion in sales for the quarter, according to analysts. It’s important to mention that the comparison isn’t completely fair because Amazon’s cloud business makes up 15% to 17% of its total income, while Walmart doesn’t have a similar service. The tech giant’s quarterly net profit of $20 billion, marked an 88% increase over the same quarter in 2023.
Amazon’s Jassy mentioned that the company is lowering its costs for each order by changing its warehouse system. They are now keeping things closer to customers, which speeds up delivery and reduces shipping costs, creating a profitable cycle for the company. Jassy said that Amazon’s delivery costs for each item have decreased globally for the second year in a row. Amazon’s profits went up in the fourth quarter for both its North America and International divisions, which cover e-commerce and advertising. This is the eighth quarter in a row that profits have risen.
Even though Amazon did well in the last three months of 2024, its stock fell about 4% after trading hours. Investors are worried because the company’s forecast for the first quarter was lower than what analysts expected for both sales and profit. Amazon leaders pointed to big changes in foreign exchange rates and noted that the first quarter of 2024 had an extra sales day because it was a Leap Year. It’s reasonable to think that Amazon leaders might be cautious about President Trump’s new tariffs on China, since many goods sold on Amazon are made there. However, analysts did not bring this up during the company’s earnings call. An Amazon spokeswoman did not say if worries about tariffs affected the company’s predictions for the first quarter.
The main point is that Amazon is investing heavily in generative AI, believing it will become a key part of many applications in various industries. They think that AWS will play a major role in this change by providing its own chips, unique AI models, and a marketplace with access to over 100 other models.
The recent excitement about DeepSeek, which launched a strong AI model called R1 and said it was cheaper to make, scared some investors. They were concerned that big AI companies like Amazon were spending too much on AI. During the company’s results call, Jassy explained to analysts that lower costs for training and running AI models in the future will likely lead to a surge in how businesses use AI, resulting in more customer spending overall.
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He said that it will be much easier for businesses to add inference and generative AI to all their applications.
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