Is Amazon's (AMZN 0.87%) remarkable growth story fizzling? At first glance, one might think so. Management's guidance projects net sales of $151 billion to $155.5 billion for the first quarter of 2025. At the low end of this range, that would be the lowest year-over-year quarterly revenue growth in Amazon's history.
However, I think investors should examine the e-commerce and cloud giant's prospects more closely rather than focusing on its outlook for a single quarter. There are 100 billion reasons to buy Amazon stock hand over fist right now, in my opinion.
NASDAQ: AMZN
Key Data Points
A massive AI investment
That 100 billion number is a ballpark estimate of how much Amazon's capital expenditures will be in 2025.
To be clear, management didn't provide capex guidance for the full year or even the first quarter. However, CFO Brian Olsavsky noted on the Q4 earnings call that capital investments for that period had totaled $26.3 billion. "And we think that run rate will be reasonably representative of our 2025 capital investment rate," he said.
Seizing on that comment, Evercore ISI analyst Mark Mahaney noted in the call's first question, "So, Brian, that's $100 billion capex we should think about in 2025." Amazon CEO Andy Jassy reiterated Olsavsky's $26.3 billion number and responded, "I think that is reasonably representative of what you could expect in annualized capex rate in 2025." He added, "The vast majority of that capex spend is on AI for AWS [Amazon Web Services]."
Amazon's capital expenditures have never been so high. This lofty spending could negatively impact the company's earnings over the short term. However, I think that massive planned investment in AI makes Amazon stock a better long-term buy.
AMZN Capital Expenditures (TTM) data by YCharts.
"Quite a good sign"
Jassy did a good job explaining why investors should view the surge in capex as a big positive. He said that AWS must invest ahead of the curve to meet anticipated demand. Jassy emphasized, though, that the company won't ramp up its capital investments unless it sees clear evidence of increasing demand.
Amazon sees AI as a "once in a lifetime" opportunity, according to Jassy. "AI represents, for sure, the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet," he said. Jassy predicted that all applications will be "reinvented with AI inside."
With this perspective in mind, it shouldn't be surprising that Jassy believes Amazon's major capex expansion is "quite a good sign, medium to long term, for the AWS business." I think he made a compelling argument -- and I agree with it.
Amazon's AI opportunity is huge. I like that Amazon's capex next year will be even higher than Microsoft's (MSFT 1.57%) estimated $80 billion and Google parent Alphabet's (GOOG 0.56%) (GOOGL 0.42%) $75 billion. In my view, it demonstrates the company's commitment to remaining at the top of the cloud services market.
More capacity, more growth
Jassy acknowledged that capacity constraints caused AWS' growth in Q4 to be less than it could have been. However, he also said, "It is hard to complain when you have a multibillion-dollar annualized revenue run rate business in AI, like we do, and it's growing triple-digit percentage year over year."
Good news could be on the way, though. Jassy predicted that those capacity constraints will "really start to relax in the second half of 2025."
Another way to boost capacity is to maximize the use of the chips it already has deployed. With that in mind, Jassy was asked about the impact of DeepSeek's new cost-effective R1 AI model. He replied that Amazon's team was "impressed with what DeepSeek has done." Amazon Bedrock and SageMaker products already incorporate DeepSeek's technology.
But Jassy also noted that many companies are working to lower the costs of training and powering AI, including Amazon itself. He said rivals are "learning from one another" and there will likely be "a lot of leapfrogging" as innovations are made. He predicted the demand for AI will increase as inference costs decline.
Again, I think he's right. And it bolsters the argument that Amazon's massive capital investments planned for this year really do represent 100 billion reasons to buy the stock hand over fist right now.
