Amazon (NASDAQ:AMZN) has been a key player in global e-commerce for years, but recent news surrounding its first-quarter guidance has caused concern among investors. The tech giant’s guidance for Q1 revenue growth, projecting just 5% to 9%, is the weakest growth rate on record, which has led to increased scrutiny of its future trajectory. Despite this slowdown, Amazon’s ongoing investment in artificial intelligence (AI) may hold the key to reversing the trend and driving the company’s long-term success.

In this article, we will delve into Amazon’s latest earnings report, its significant AI investments, and whether these efforts can help reignite its revenue growth.

Amazon’s Q4 Earnings Report: A Snapshot

Amazon’s fourth-quarter earnings report showed a 10% year-over-year (YOY) revenue increase, reaching $187.8 billion, slightly surpassing analysts’ expectations. Operating income hit a record $21.2 billion, with net profit rising to $20 billion—almost double the amount from the prior-year period. Amazon’s Amazon Web Services (AWS) reported revenues of $28.8 billion, a 19% YOY increase, while its advertising division generated $17.3 billion, up 18% YOY, but slightly missing analyst expectations.

However, it is clear that the company is feeling the pressure, as Amazon’s Q1 guidance has raised concerns. The low-end forecast of 5% growth has sparked fears that Amazon’s rapid growth may be slowing down.

AI Investment in Amazon Stock: A Long-Term Opportunity

Despite the short-term revenue concerns, Amazon continues to push forward with AI investments. CEO Andy Jassy called AI a “once-in-a-lifetime type of business opportunity” during the earnings call, signaling the company’s aggressive strategy to integrate AI into its operations. Amazon plans to allocate up to $100 billion in capital expenditures (capex) in 2025, a significant increase from the $83 billion allocated in 2024.

This increased AI investment is seen as a long-term strategy, even if it may dampen short-term profitability. Jassy assured shareholders that both Amazon and its customers would ultimately benefit from these long-term AI investments. The company is positioning itself to capitalize on the growing demand for AI services, which could significantly boost its revenue streams in the future.

The Strain on Growth: Rising Capex and Slowing Revenues

Tech companies, including Amazon, are facing a common challenge: rising capex in the AI sector. Similar concerns were raised about other tech giants like Alphabet (NASDAQ:GOOG), Meta Platforms (NASDAQ:META), and Microsoft (NASDAQ:MSFT), all of whom are investing heavily in AI while experiencing slowed growth in other areas.

While Amazon’s revenue growth may be slowing, there are still several reasons to be optimistic. Amazon’s operating margins have been improving for eight consecutive quarters, and its cost to serve customers per unit has decreased for two years. The company also believes it can reduce costs even further, boosting profitability in the medium to long term.

Will AI Investments Revitalize Amazon’s Growth?

Amazon’s short-term struggles may be due, in part, to external factors, such as a stronger dollar, which has negatively impacted U.S. companies with a global footprint. However, the company remains confident about its long-term prospects, especially in AI. Its AWS division, which has been growing rapidly, is expected to face fewer capacity constraints as AI demand increases. Amazon is also focusing on expanding its Prime advertisement platform and improving its e-commerce business, especially through innovations like Amazon Air, which delivers orders within an hour.

One of Amazon’s newer initiatives, the Haul platform, could also play a critical role in the company’s recovery. Competing with rivals like Temu and Shein, Haul allows Amazon to reach new markets, potentially expanding its customer base.

Conclusion: Is Amazon Stock Still a Buy?

While Amazon’s short-term revenue growth may be slowing, the company’s long-term strategy, particularly its investment in AI, could pave the way for a more prosperous future. The $100 billion capex for 2025 signals Amazon’s commitment to AI as a core part of its business, and its leadership believes that these efforts will pay off over time. With reasonable stock valuations (currently trading at around 33x its expected earnings), investors may still find Amazon stock worth holding onto in anticipation of future gains.

In conclusion, AI investment in Amazon stock presents an exciting opportunity for growth, despite the current challenges. For those with a long-term investment outlook, AMZN remains a compelling option.

Featured Image: Megapixl© Jetcityimage

Please See Disclaimer