Although Amazon just announced an impressive fourth-quarter profit report, its stock price, along with Microsoft and Google, all fell due to concerns about the high cost of investing in AI.
Amazon said its fourth-quarter net income more than doubled to $20 billion, with net revenue rising 10% to $187.8 billion. While its AWS cloud computing business still saw revenue growth of 19% to $28.8 billion, that was still slightly below market expectations.
Amazon CEO Andy Jassy defended his strategy of investing heavily in AI, saying the company plans to spend up to $100 billion on capital investments by 2025, “the vast majority” of which will be on AI.
AI is a once-in-a-lifetime business opportunity that cannot be missed, according to Jassy. But despite the outsized earnings, Amazon’s stock price fell more than 5% in after-hours trading, reflecting similar concerns for Microsoft and Google as AI spending overshadows strong financial results.
Microsoft, which has been at the forefront of the AI revolution thanks to its partnership with OpenAI, is expected to invest around $80 billion in AI this fiscal year. Meanwhile, Google surprised analysts by announcing plans to spend up to $75 billion on capital investments by 2025, despite cloud revenue rising 30% to $12 billion but still missing expectations.
The only bright spot in the picture is Meta, Facebook’s parent company. Shares of Meta jumped 18% in January as its AI strategy received strong investor support.
The emergence of a lower-cost DeepSeek model from China raises questions about the effectiveness of massive AI spending. Despite efforts to control the export of advanced chips to maintain its leadership in AI, DeepSeek achieved impressive results using less advanced but legitimate Nvidia chips.
In addition, the uncertainty in the trade relationship between the US and China may also be the reason why big technology companies are more cautious with their growth forecasts. Technology analyst Rob Enderle said that Amazon's cautious forecast for the first quarter of 2025, with growth of only 5-9% and expected revenue ranging from $151 to $155.5 billion, may reflect concerns about trade tensions.
Apple, which just posted a record profit of $36.3 billion last week, has not been spared the impact of losing its leading position in the Chinese smartphone market over the past year and facing negative impacts from ongoing trade wars.
As huge investments in AI have yet to yield clear returns, investors are questioning whether these strategies are truly sustainable or just a costly race with no end in sight.
