Net Profit Doubles, Yet Stock Plummets—Is Amazon’s Q4 Earnings Report Really That Bad?

TradingKey - On Thursday, February 7, tech giant Amazon (AMZN.US) released a mixed Q4 2024 earnings report after the market close. While revenue and profits exceeded expectations, disappointing guidance and soaring capital expenditures (CapEx) sent its stock tumbling over 7% in after-hours trading.

Amazon’s report featured several highlights: cost-cutting measures paid off, net profit nearly doubled, its cloud computing division maintained a 19% growth rate for the third consecutive quarter, and e-commerce performed strongly during the holiday season.

However, investors were particularly concerned about the AI growth outlook and rising expenditures. On one hand, Amazon plans to invest heavily in AI infrastructure this year; on the other, it warned of a "volatile" year ahead and provided revenue guidance that fell short of expectations.

With the rise of Chinese AI model DeepSeek driving down the cost of AI training, Amazon’s continued heavy spending on AI has raised investor concerns.

Following the earnings release, Amazon’s stock dropped over 7% in after-hours trading before paring losses to around 4%. The company’s latest closing price stood at $238.83, reflecting a year-to-date gain of approximately 9%.

TradingKey analyst Viga Liu noted that Amazon delivered a strong Q4 2024 performance, demonstrating robust revenue growth and profit expansion. Furthermore, AWS’s strategic investments in AI hardware and services suggest long-term growth opportunities, making the stock a strong long-term hold.

Financial Performance:

●  Total Revenue: $187.8 billion, a 10% year-over-year increase, exceeding expectation of $1873 billion.

●  Net Profit: Jumped to $2000 billion, nearly doubling from last year's $1060 billion.

●  Earnings Per Share: $1.86, with an approximate 85% YOY growth, above the expected $1.49.

CapEx: $26.3 billion for Q4, which is mostly directed towards AWS, particularly AI infrastructure. Given the anticipated demand for AI services, this reflects a strategic focus on AI as a long-term growth driver. Amazon predicts its 2025 CapEx will match Q4 2024 run rate, with a full-year CapEx forecast around $1050 billion.

AWS: As Amazon's profit center, AWS continues its growth trajectory, with revenues reaching $287.9 billion, a 19% increase YOY. Although slightly below expectation due to supply constraints, the growth remains strong. The increasing demand for AWS cloud services, especially in AI and machine learning applications, has been a key driver of this growth.

Trainium Chips: A significant highlight for AWS. Compared to other GPU-driven instances, Trainium chips offer a 30% to 40% better price-performance ratio, crucial for large-scale AI computations. These chips not only reduce the cost of training and inference for AI models but also provide significant economic benefits for AWS customers. AWS is actively developing Trainium3 and planning for Trainium4 while maintaining a close partnership with NVIDIA. 

The introduction and development of Trainium chips are not just technological advancements but also pivotal steps in AWS's strategy towards self-sufficiency in AI hardware. By reducing reliance on external suppliers and optimizing cost control, Amazon is preparing for a future where AI will be at the core of computing needs, thereby further solidifying AWS's leadership position in the cloud computing market.