Amazon faces market setback amid cloud growth concerns

Amazon's stock took a significant hit as concerns over its cloud computing division and a weaker-than-expected sales forecast led to a sharp decline in investor confidence. Following the release of its fourth-quarter earnings report, Amazon's shares dropped by up to 5% in after-hours trading, wiping out approximately $90 billion in market value before settling at a 4.2% decline.

Chief Financial Officer Brian Olsavsky noted that capital expenditures for the year would likely remain on par with the previous quarter’s $26.3 billion, with substantial investments directed toward artificial intelligence development. Despite this, Amazon’s revenue projection for the first quarter fell short of analyst expectations. The company forecasted sales between $151 billion and $155 billion, below the anticipated $158 billion, even when accounting for the negative impact of last year’s Leap Day.

Amazon Web Services (AWS), the company's cloud division, reported a 19% revenue increase to $28.79 billion—just missing analyst estimates. The segment's growth has been hindered by supply chain issues, particularly delays in chip availability from third-party suppliers, according to CEO Andy Jassy. This shortfall aligns with reports from other major cloud providers, which have also experienced a slowdown in expansion.

Investors have grown increasingly impatient with major technology firms' large-scale spending on artificial intelligence and cloud infrastructure. The market's reaction was particularly pronounced given the emergence of new AI competitors, such as China's DeepSeek. Despite these challenges, Amazon remains committed to its AI strategy, unveiling advanced AI software models at its annual AWS conference and preparing for the upcoming launch of its generative AI-powered Alexa voice service.

The broader cloud computing sector has shown signs of deceleration, with industry leaders also reporting slower growth in the previous quarter. Rising infrastructure costs for AI development have led to significant capital expenditures, with major technology firms collectively projecting around $230 billion in spending for 2025.