Tech giant Amazon has seen its share price drop overnight after an earnings report missed analysts’ expectations amid ongoing concerns by investors over spending on artificial intelligence (AI).
Amazon Web Services (AWS) – the cloud computing arm of the company which is responsible for between 15 and 17 per cent of total revenue – generated fourth-quarter revenue of $28.79bn (£23.09bn), below estimates on Wall Street of $28.84bn (£23.13bn).
The immediate concern for investors appears to be the huge expenditure on AI capacity, which the biggest companies in America are betting yields them enormous long-term rewards. However, that is not yet translating into increased growth, with Amazon now following the same fate as Google owner Alphabet and Microsoft in seeing a fall in share price.
While an immediate after-hours fall saw Amazon shares dip up to five per cent from Thursday’s closing price, it had clawed back some of that ground, but was still down 2.9 per cent by 11am GMT on Friday, translating to a loss of around $73bn (£58.6bn) in market capitalisation
Alphabet remains down around seven per cent since its own earnings report published earlier this week, with Microsoft still down around six per cent from releasing its report last month.
It means all eyes will be on AI chipmaker Nvidia, which reports on 26 February and suffered a steep drop in its own share price after the emergence of the Chinese AI system DeepSeek, with claims it can be made at a fraction of the cost of rivals.
Dan Coatsworth, investment analyst at AJ Bell, said: “Investor concerns about big spending on AI-related infrastructure have moved up a gear and Amazon is at the centre of the storm.
“Last year we saw the first round of questions about how quickly companies would get a positive return on AI investments. Those concerns have now intensified as the big tech companies continue to throw billions of dollars on AI.
“Investors clearly want these companies to benefit from the AI revolution, but they want to be sure that the money is being well spent. The big worry is that they’re being too aggressive, particularly as cheaper ways of accessing AI are now emerging.
“Amazon has topped the pack with guidance for approximately $100bn capex in 2025, the vast majority going on AI for its cloud division, AWS. It is splashing the cash on data centres, hardware, chips and networking gear to further lay the foundations to serve what it expects to be a gigantic wave of demand. That’s a huge outlay to stomach now and then a waiting game before it gets a positive financial return on the investment.
“Amazon insists it wouldn’t spend that money unless it was certain that customers will be knocking on its door. It predicts that virtually every application that exists today will be reinvented with AI at the heart.
“Investors have got the jitters about the gigantic spending for the jam tomorrow. It doesn’t help that the jam today is not as sweet as they’d like. AWS sales growth in the past quarter was a fraction below market expectations, extending a similar trend seen by Microsoft and Alphabet for cloud computing disappointment.”
Overall sales at Amazon increased 10 per cent to $187.8 bn in Q4, beating estimates of $187.3bn (£150.3bn).
President and chief executive of Amazon, Andy Jassy, said: “The holiday shopping season was the most successful yet for Amazon and we appreciate the support of our customers, selling partners, and employees who helped make it so.”
