Amazon.com Inc. beat Wall Street’s expectations on fourth-quarter earnings and revenue today, but sales in its all-important cloud computing business came up short, and guidance for the current quarter was light.

As a result, investors were less than satisfied, and Amazon’s stock fell more than 4% in the late-trading session, erasing a slight gain earlier in the day.

The company reported quarterly earnings before certain costs such as stock compensation of $1.86 per share, easily beating the Street’s target of $1.49 per share. Revenue for the period rose 10%, to $187.79 billion, just beating the consensus estimate of $187.3 billion.

Amazon’s net income, on the other hand, jumped almost 50%, to $20 billion. The growing profit reflects the success of Amazon Chief Executive Andy Jassy (pictured) in is ongoing cost-cutting campaign, which began in late 2022 and has seen the company lay off more than 27,000 employees since then, with job cuts stretching into this year.

The company has boosted its profitability by cutting expenses and growing its high-margin cloud computing business, Amazon Web Services Inc. In the quarter, its operating margin, which accounts for profit remaining after deducting the costs of running its business, rose to 11.3%, up from 11% in the prior quarter and 7.8% one year ago.

However, investors were likely to be concerned that AWS delivered revenue that came in just below the Street’s consensus. The company reported $28.79 billion in sales from the unit, just below the target of $28.84 billion. At least the business is growing faster than it was a year ago, with revenue up 19% during the quarter compared with 13% in the same period last year.

AWS has not been able to match the growth of Amazon’s competitors, with Microsoft Corp.’s Azure and Alphabet Inc.’s Google Cloud seeing cloud-related revenue rise by 31% and 30%, respectively. Even so, AWS remains much bigger than any other cloud infrastructure provider, and it’s notable that those peers also missed expectations this week.

AWS now provides 15% of Amazon’s total revenue, and it continues to be a key profit driver, accounting for just over half of its net income. In the quarter, AWS delivered $10.63 billion in operating income, up 48% from the same period a year ago.

Holger Mueller of Constellation Research Inc. said that although investors might be disappointed by the AWS miss, it’s clear that the business remains the company’s main growth and profit engine. “It also broke through the $100 billion revenue barrier for the first time in fiscal 2024, which demonstrates it’s still an extremely healthy business overall,” he said.

In a statement, Jassy hailed the “remarkable innovation” within AWS, especially in terms of its artificial intelligence capabilities. Among other things, he highlighted the launch of its new Trainium 2 artificial intelligence chips, its new foundation models Amazon Nova, exciting updates to Amazon Bedrock and a new release of Amazon SageMaker.

“These benefits are often realized by customers (and the business) several months down the road, but these are substantial enablers in this emerging technology environment and we’re excited to see what customers build,” Jassy said.

The company also provided an update on the massive investment it has been pouring into its data center infrastructure, in order to support the industry’s rapid growth. During the quarter, Amazon’s capital expenditures reached $27.8 billion, which was almost double the $14.6 billion it spent a year earlier. AWS has been spending billions of dollars in order to buy up data center gear like Nvidia Corp.’s graphics processing units, which power the vast majority of the world’s AI workloads today.

Amazon Chief Financial Officer Brian Olsavsky said the company aims to boost its capital spending to $100 billion in fiscal 2025, up from $83 billion in fiscal 2024. According to him, the increased spending mainly relates to AWS, and is intended to support its AI services as well as the broader North American cloud infrastructure market.

The company is stepping up its investments at a time when investors are becoming increasingly nervous about them due to the emergence of the Chinese AI startup DeepSeek Ltd. DeepSeek’s R1 model has shown it can match the performance of the very best models in the business, despite claims that it cost less than $6 million to develop. That revelation caused chaos in the financial markets last week, as it challenges the assumption that technology firms must spend billions of dollars to be able to compete.

Investors were reassured somewhat when Meta Platforms Inc. Chief Executive Mark Zuckerberg confidently asserted that spending billions of dollars on AI infrastructure will still provide a significant advantage, but the market remains jittery.

Mueller said investors should be pleased by Olsavsky’s comments, as Amazon desperately needs to invest in its data centers. “Amazon might be leading in the cloud, but in terms of AI it is playing catch up to its main competitors, Google and Microsoft,” he said. “So it needs to invest more than them.”

Elsewhere, Amazon said that its advertising revenue jumped 18%, to $17.3 billion, in the quarter, as brands increase their spending to ensure their products are listed prominently on its popular retail website and app.

“The advertising business is the new rising star within Amazon, and it’s fast becoming a new growth and profit engine, so the company is no longer reliant solely on AWS,” Mueller said.

Looking ahead, Amazon said it’s anticipating revenue of between $151 billion and $155.5 billion in the current quarter. That surprised analysts, who had forecast sales of $158.5 billion. Amazon blamed the shortfall on the “unusually large, unfavorable impact” of foreign exchange rates, which amounts to an estimated $2.1 billion.

Amazon’s forecast suggests revenue growth of between 5% and 9%, and if it comes in at the lower end of that range, it would be the slowest growth in the company’s history since going public in 1997.

Despite today’s after-hours drop, Amazon’s stock is still up 9% in the year to date, continuing the momentum that saw it rise 44% in the previous year.

Photo: Robert Hof/SiliconANGLE