Amazon.com Inc (NASDAQ:AMZN) shares fell more than 7% to about $205 on Friday following the company’s fourth quarter earnings report, as investors digested the $200 billion capital expenditure plan and disappointing first quarter margin guidance.
While AWS and retail results impressed, analysts from Jefferies, Wedbush, and Bank of America warned that Amazon’s towering capital expenditures could keep investors on edge.
Jefferies highlighted the need for more tangible returns from Amazon’s spending. While AWS revenue grew 24% year over year and backlog increased roughly 40%, the analysts wrote that these gains “paled versus capex growth and peers, suggesting more work ahead to regain mindshare in AI and increase confidence in capex ROI.”
They noted that AWS’s sequential backlog growth of $44 billion was smaller than Microsoft’s $233 billion and Google’s $85 billion, despite Amazon having the highest revenue base.
Jefferies maintained its ‘Buy’ rating, citing “depressed valuation, stock underperformance, and early stage of AWS acceleration,” but added that investors will want to see continued progress in AWS and AI metrics as well as more concrete evidence of capex returns.
Wedbush analysts pointed to Amazon’s continued strength in AWS and retail segments. The analysts wrote that Amazon reported “the strongest year-over-year growth within AWS over the last 13 quarters (+23.6%), ahead of estimates by ~250bps, reflecting increased capacity and encouraging demand across AI and core services.”
They noted that AWS has doubled its capacity since 2022 and is on pace to double again by 2027.
While acknowledging that Amazon’s guidance for first-quarter operating income was below initial expectations, the analysts added that “the significance of the planned level of spend is consistent with management’s longer-term positioning,” and cited multiple levers for sustainable margin improvement, including fulfillment optimization and a structural shift toward higher-margin AWS and advertising revenue.
Wedbush lowered its price target to $300 following the report but maintained an ‘Outperform’ rating.
Bank of America also focused on the implications of Amazon’s capital expenditure plans for future growth. The analysts noted that while fourth-quarter revenue and profit exceeded Street estimates, the first-quarter outlook and $200 billion capex guide “pressured stock, but we see capacity needed to maintain Cloud leadership.”
They highlighted that AWS revenue growth of 24% was above expectations and on a positive revenue revision cycle, but warned that investments will continue to weigh on margins in the near term.
The firm reiterated its ‘Buy’ rating with a $275 price objective, emphasizing that “while the capacity ramp will add margin volatility in future quarters, we think this capacity will be fully utilized as part of the AI business transformation across industries.”
