Amazon's fourth-quarter sales growth surpassed Wall Street expectations, but its aggressive spending plans for artificial intelligence this year have exceeded those of any other tech giant, surprising analysts.
The company's total revenue and its closely watched cloud business, AWS, both reported stronger-than-expected growth for the fourth quarter. However, Amazon projected capital expenditures of approximately $200 billion for 2026, marking a 50% increase from 2025 and about 36.9% higher than the Wall Street consensus estimate of $146.1 billion. Due to this unexpectedly sharp rise in spending, Amazon's average operating profit guidance for the year fell more than 14% below analyst forecasts.
This guidance is 11% higher than the median spending forecast of about $180 billion announced by Google earlier this week and far exceeds Meta's planned maximum expenditure of $135 billion for the year. Microsoft's full-year capital expenditure for its fiscal year ending June 2026 is projected to be under $100 billion.
Similar to Google's earnings report, Amazon's results highlighted the rapid growth of its cloud business while also revealing a core dilemma facing Silicon Valley giants: cloud growth was initially seen as the funding source for generative AI development. But as the costs of building new data centers and procuring chips continue to climb, investors are questioning whether such high investments will yield commensurate returns.
Despite robust growth in Amazon's core retail business and better-than-expected AWS revenue in the fourth quarter, the market reacted negatively. Following the earnings release, Amazon's stock, which had already closed down over 4% on Thursday, extended its decline in after-hours trading, with losses quickly widening to over 10% and briefly exceeding 14% before moderating to under 10%.
Three months prior, stronger-than-expected AWS revenue for the third quarter had driven Amazon's stock price up nearly 10%. Currently, amid a climate of "anti-software sentiment" affecting the broader tech sector, investors are attempting to distinguish winners and losers amidst the trillion-dollar AI spending spree.
AWS revenue grew 24% year-over-year, marking its fastest growth rate in over three years. Amazon's fourth-quarter net sales increased 14% to $213.39 billion, slightly exceeding analyst expectations of $211.49 billion and accelerating from the 13% growth rate seen in the third quarter.
AWS, often considered the crown jewel of Amazon, was a standout performer in the report, somewhat alleviating concerns about broader cloud demand weakness. AWS net sales rose 24% to $35.58 billion, about 2% higher than the expected $34.88 billion. This growth rate accelerated from the 20% seen in the third quarter, setting a new high since late 2022.
However, AWS profitability did not continue to expand. AWS operating profit for the quarter was $12.47 billion, up 17.3% year-over-year. The segment's operating margin was 35.0%, down from 36.9% a year earlier but up from 34.64% in the previous quarter, slightly exceeding the expected 35%.
Following sustained double-digit AWS growth, market expectations have shifted from questioning "can it grow?" to "can it expand margins and cash flow during this high-investment cycle?" This explains why Amazon's stock fell despite strong AWS growth, as investors worry the acceleration stems more from increased infrastructure supply rather than a natural, capital-light recovery in demand.
Management emphasized progress with custom chips and its AI platform, noting that annualized revenue from Trainium and Graviton combined exceeds $10 billion with triple-digit year-over-year growth. High demand for Trainium2 and Trainium3, along with an expanding Bedrock model ecosystem, reinforces Amazon's position as an "AI infrastructure provider" but also signals that this growth phase requires significantly higher capital expenditure.
A significant contraction in free现金流 and the $200 billion capital expenditure guidance weighed heavily on the stock price. The key turning point in the report concerned cash flow and investment intensity.
Over the trailing twelve months ended Q4, operating cash flow was $139.5 billion, up 20% year-over-year. However, free cash flow plummeted 70.7% to just $11.2 billion, down from $38.2 billion a year ago.
The primary reason for weaker free cash flow was a surge in capital expenditures. Spending on property and equipment, net of disposals and incentives, reached $128.3 billion over the past twelve months, a 65% increase. For the full year 2025, capital expenditures under the cash flow statement definition hit $131.8 billion, a nearly 59% jump from $83 billion the prior year, which the company attributed mainly to AI-related investments.
The market found Amazon's forward spending guidance most difficult to digest. CEO Andy Jassy stated that given strong demand for existing products and significant opportunities in AI, chips, robotics, and low Earth orbit satellites, Amazon expects to invest approximately $200 billion in capital expenditures in 2026, anticipating strong long-term returns.
Given existing market anxiety about whether AI investments are excessive and when returns will materialize, the $200 billion figure was interpreted as suggesting potential continued or increased pressure on free cash flow, short-term margin compression to accommodate compute and infrastructure expansion, and potential valuation pressure if AI monetization falls short of expectations. This logic directly explains the stock's sharp decline: current-quarter performance was solid, but uncertainty surrounding the "cash flow - capital expenditure - return cycle" for the coming year increased.
For the first quarter of 2026, Amazon expects revenue between $173.5 billion and $178.5 billion, representing 11% to 15% year-over-year growth, with about 180 basis points of growth attributed to favorable foreign exchange rates. The guidance midpoint of $176 billion is roughly in line with analyst expectations. Operating profit is forecast between $16.5 billion and $21.5 billion, with a midpoint of $19 billion, about 3.3% higher than the year-ago period but 14.4% below analyst expectations. The guidance's key implication is that operating profit could potentially see a double-digit year-over-year decline, indicating that short-term margin expansion is not management's top priority. The company also identified two incremental cost drivers: approximately $1 billion in increased year-over-year costs for its Project Kuiper low Earth orbit satellite program and investments in international retail for faster delivery and lower prices.
Against a backdrop of high market sensitivity to cloud demand and AI spending, this combination of slowing profit elasticity and accelerating investment easily triggered a valuation reassessment.
Fourth-quarter earnings per share were $1.95, up 4.8% year-over-year but slightly missing consensus estimates, with growth slowing significantly from the previous quarter. Operating profit grew 17.9% to $25.0 billion, exceeding expectations. The quarter included several one-time charges: $1.1 billion for resolving tax disputes and litigation in Italy, $730 million in severance costs, and $610 million in asset impairments related primarily to physical stores. Excluding these, operating profit would have been $27.4 billion. While these charges affected the quarter's profit appearance, the after-hours sell-off and market focus remained squarely on future investment intensity and the free cash flow trajectory.
Boosted by a sequential improvement in AWS margins, Amazon's overall operating margin rose to 11.7% in Q4 from 9.7% in Q3, nearing the record high.
Advertising revenue continued to act as a profit stabilizer, growing 22% year-over-year to $21.32 billion. E-commerce revenue grew about 10% to $82.99 billion. Compared to the retail business, advertising has superior margin structure and provides more predictable growth, offering a hedge as the company directs resources toward capital-intensive areas like AI compute, satellite networks, and rapid delivery.
North American retail revenue grew 10% to $127.08 billion, slightly below expectations, while operating profit increased 23.9% with the margin improving to 9.03%. This indicates stable core retail growth with improving profitability, though rising transportation costs and ongoing investments in fast delivery and pricing strategies suggest linear margin improvement may be challenging.
International revenue grew a strong 17% to $50.72 billion, but operating profit fell 21.2%, with the margin declining. Furthermore, guidance indicated increased investment in international markets for quick commerce and sharper pricing, signaling a potential continuation of a strategy prioritizing scale and user experience over near-term profit improvement.