Seoul Gazette - Amazon shares plunge as AI costs climb

Amazon reported a profit of $21.2 billion on net sales of $213.4 billion in the recently ended quarter as its AWS cloud computing, retail, advertising, and chips businesses thrived.

"With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low-earth orbit satellites, we expect to invest about $200 billion in capital expenditures across Amazon in 2026," said Amazon chief executive Andy Jassy.

Market analysts had forecast that Amazon's capital expenditures would reach about $147 billion this year, mostly due to AI spending initiatives.

Amazon Web Services (AWS) unit sales in the quarter tallied $35.6 billion, a 24-percent jump from the same period a year earlier, according to earnings figures.

Like other tech giants, Amazon is making massive investments to grab a slice of the AI revolution pie.

It is particularly banking on the performance of AWS, the world's leading cloud computing provider, which is engaged in a race against its fast-growing rivals, Microsoft Azure and Google Cloud.

"We have very high demand; customers really want AWS for core and AI workloads," Jassy said on an earnings call.

"We're monetizing capacity as fast as we can install it."

Cloud computing giants have spoken of demand for AI-infused services outpacing supply as they spend fiercely to expand infrastructure and access to energy needed to power the technology.

"Amazon delivered a slightly mixed picture with strong overall revenue growth and a standout boost from the cloud unit's much anticipated reacceleration picking up greater speed," eMarketer principal analyst Sky Canaves said of the earnings figures.

"Amazon has once again indicated it is willing to outspend its rivals with an eye-watering $200 billion in planned capex spending for 2026, far exceeding expectations."

Amazon's core e-commerce business maintained solid growth in the important year-end holiday quarter with the help of efficient operations despite ever-faster deliveries, according to Canaves.

An AI shopping assistant called "Rufus" at Amazon was gaining traction and helping drive online sales, the analyst noted.

Jassy assured financial analysts that Amazon is keenly tracking demand in the AWS business with a focus on getting strong returns there.

- Chasing demand -

The earnings release comes on the heels of Alphabet and Microsoft reporting that they are seeing cloud computing demand surge and are continuing to invest heavily in infrastructure supporting the technology.

Both Alphabet and Microsoft shares have suffered despite robust quarterly earnings as investors focused on billions of dollars they are pumping into cloud computing and artificial intelligence.

The tech giants are all making huge investments to build up their AI computing capabilities, money that the companies insist will be justified by increasing adoption of AI tools and applications by customers across the globe.

Amazon announced last week that it would be cutting 16,000 jobs worldwide as part of a restructuring, as it focuses spending on artificial intelligence.

The job cuts, which follow already-flagged plans to cut its workforce by 14,000 posts, are aimed at "reducing layers, increasing ownership, and removing bureaucracy," senior vice president Beth Galetti said in a statement.

An overall elimination of 30,000 jobs would amount to nearly 10 percent of the 350,000 office jobs at Amazon, where distribution and warehouse workers make up the bulk of its 1.5 million employees.

A.Byun--SG