In 2024, this spending was still $83 billion. Amazon is trying to invest quickly in AI as competition from companies such as OpenAI and Google increases.
The projected capital spending for 2025 significantly exceeds the previous year’s spending. Amazon CEO Andy Jassy previously indicated that this increase is mainly driven by the growth of generative AI. In the fourth quarter of 2024, capital spending reached $26.3 billion, an amount expected to be a good indication of the level in 2025. Most of these investments are focused on AI within AWS.
Amazon is investing heavily in data centers, networking equipment and hardware to meet the growing demand for generative AI, which has surged in popularity since the launch of ChatGPT in late 2022. The company has since launched several AI products, including the Nova models, Trainium chips, a shopping chatbot and the AI marketplace platform Bedrock.
Tech giants are investing heavily
Other tech giants are also investing heavily in AI. Alphabet, Google’s parent company, expects to make about $75 billion in capital spending by 2024. Microsoft has announced it will spend about $80 billion in fiscal 2025 to expand data centers for AI-related workloads. Meta plans investments of up to $65 billion to build additional data centers and computer networks.
Amazon’s update on its investment plans followed the release of its quarterly earnings, which showed mixed results. The company predicted lower-than-expected sales for the current period, which overshadowed positive fourth-quarter results. This led to a share price drop of more than four percent in after-hours trading.
Disappointing outlook
While Amazon reported better-than-expected quarterly results, it gave a disappointing outlook. Revenue rose 10 percent to $187.79 billion, above expectations. Net profit nearly doubled to $20 billion ($1.86 per share). Amazon Web Services grew 19%, but lags behind Microsoft and Google. Advertising revenue was slightly lower than expected. The outlook for the first quarter is between $151 billion and $155.5 billion, lower than the expected $158.5 billion, partly because of negative currency effects. CEO Andy Jassy’s cost cuts helped boost profit margins. Amazon is investing heavily in AI and data centers to keep up with competition from Microsoft, Google and OpenAI.
Unique business opportunity
Despite concerns about the increase in capital spending, Amazon sees this as a unique business opportunity. The company expects that customers, shareholders and the company itself will benefit in the long run from these investments in AI. In addition to AI, investments are also being made in the retail sector, with the goal of improving delivery speeds and reducing operational costs.
At the same time, skepticism is growing about the high AI spending by technology companies. The recent breakthrough of Chinese AI startup DeepSeek has shown that large-scale investments are not always necessary to develop competitive models. DeepSeek claims it took only two months and less than six million dollars to build its R1 model, which would be similar to OpenAI’s o1 model.
Its unexpected impact caused turmoil in the market, with chipmakers such as Nvidia and Broadcom collectively losing $800 billion in market value.