ii view: Amazon bets big on AI

Fourth-quarter results to 31 December 

• Net sales up by 14% to $213.4 billion (£158 billion) year-over-year
• Earnings per share of $1.95, up from $1.86 per share

Guidance:

• Expects Q1 operating income or profits of between $16.5 billion and $21.5 billion, potentially up from $21.4 billion in Q1 2025

Chief executive Andy Jassy said: 

“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, and anticipate strong long-term return on invested capital.”

• Invest with ii: Most-traded US Stocks | Buying US Shares in UK ISA | Cashback Offers

ii round-up:

Retailer and cloud computing provider Amazon.com Inc (NASDAQ:AMZN) predicted spending for the 2026 year ahead far exceeding Wall Street estimates with the investment expenditure potentially weighing on near-term profits. 

Expected capital expenditure of $200 billion (£148 billion) on items such as new data centres is potentially up from 2025’s $131 billion and comfortably exceeds analyst estimates of around $146 billion. Amazon’s profit forecast for the current ongoing first quarter of between $16.5 billion and $21.5 billion is potentially up from $21.4 billion in Q1 2025 although below Wall Street hopes of $22.2 billion.

Shares for the Dow Jones 30 and Nasdaq 100 company fell 9% in after-hours US trading having come into these latest figures up 5% during 2025. The Dow Jones 30 and Nasdaq 100 indexes rose 13% and 20% last year. Shares for rival cloud computing providers Microsoft Corp (NASDAQ:MSFT) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL) rose 14% and 65% respectively over 2025. 

Alongside its US and International retailing businesses, the group also operates Amazon Web Services (AWS), providing a series of data centres and increasingly hosting AI-related software for other companies such as financial services providers. 

Amazon investments last year included an $11 billion AI data centre called project Rainier, built exclusively to run workloads for Anthropic, a US AI software developer and whose products are now seen as a potential treat to data-focused companies like RELX (LSE:REL), and Experian (LSE:EXPN). 

Amazon sales for this latest quarter to late December rose 14% from a year ago to $213.4 billion, pushing earnings up 5% to $1.95 per share. Wall Street had expected outcomes of $211.3 billion and $1.97 per share respectively. 

Sales for AWS rose 24% year-over-year to $35.6 billion, comfortably outpacing gains of 10% and 17% for the North American and International retailing businesses. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on Amazon shares post the results, again flagging the company as a ‘top pick.’  

ii view:

Founded in 1994 by Jeff Bezos, Amazon is today headed by former AWS boss Andy Jassy. As well as smart speaker brand Alexa, others include Prime TV competing against rivals such as Netflix Inc (NASDAQ:NFLX) and The Walt Disney Co (NYSE:DIS) and Fire tablets up against the likes of Apple Inc (NASDAQ:AAPL). AWS generated most profits during this latest quarter at a 50%, followed by the North American retail business at 46% and International retail the balance of 4%. 

For investors, returns on a proposed investment of $200 billion this year are not guaranteed with intense competition in the cloud data arena also coming from other players such as International Business Machines Corp (NYSE:IBM) and Oracle Corp (NYSE:ORCL). Unfinished trade talks between the US and China could yet see Trump tariffs raising the cost of goods imported from China. Government concerns regarding big-tech dominance have not gone away, while heightened government borrowing levels globally continue to place pressure on raised taxes takes and resulting pressure on consumer disposable incomes.  

• Where to invest in Q1 2026? Four experts have their say
• AI software sell-off: will FTSE 100 losers bounce back?
• eyeQ: FAANG stock fires bullish signal

On the upside, Amazon’s track record for generating positive returns on investment’s is considered a good one with early aggressive investment potentially boosting longer-term profits. Management’s focus on costs includes a recently announced second wave of job losses, mainly across the retailing businesses. A diversity of business type and geographical locations exists, while brands such as Nike are looking to use Amazon as an alternative online store to their own website offering. 

In all, and despite ongoing risks, strong market shares for what are now highly established global businesses are likely to keep long-term fans of Amazon firmly optimistic. 

Positives

• Dominant position in online retailing
• Pushing AI initiatives and investments

Negatives

• Government concerns for monopolistic powers
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy