Amazon shares dropped 4% on Friday after CEO Andy Jassy warned the company could face capacity constraints in its cloud computing unit — despite plans to spend $100 billion on capital expenditures this year.
“It is true we could be growing faster were it not for some of the constraints on capacity,” Jassy said during an earnings call with investors on Thursday.
In particular, he mentioned delays in getting hardware and not having enough electricity, according to a Bloomberg report.
In October, Jassy had predicted the company would spend more in 2025 than the roughly $83 billion it spent last year, largely due to a continuing expansion in AI.
“We spent $26.3 billion in capex in Q4, and I think that is reasonably representative of what you expect an annualized capex rate in 2025,” Jassy said during the earnings call, according to a CNBC report.
“The vast majority of that capex spend is on AI for AWS,” referring to Amazon Web Services, the company’s cloud computing division, which showed weakness in Thursday’s earnings report.
Like most tech giants, Amazon has been spending massively on data centers and hardware to meet sky-high demand for generative AI.
Spending on artificial intelligence took off in 2022 after OpenAI launched ChatGPT, sending rivals racing to release their own chatbots.
Since then, Amazon has released a slew of AI products including generative Nova models, Trainium chips, a shopping chatbot and Bedrock, a marketplace for third-party AI models.
The tech sector is expected to continue its outsize spending on AI this year.
Google parent Alphabet said it expects to invest about $75 billion in capital expenditures this year.
Microsoft said it planned to spend $80 billion and Meta said it will spend as much as $65 billion on capital expenditures, with both citing the need to build more data centers and computing infrastructure.
But tech giants’ spending has come under the microscope after Chinese AI startup DeepSeek claimed to develop its R1 model at a fraction of the cost of rivals – using less than $6 million in only two months.
The claim sent shockwaves through the industry and acted as a catalyst for a major stock selloff.
It erased a whopping $589 billion off US chipmaker Nvidia’s market capitalization – the largest single-day drop in the history of the US stock market, according to Bloomberg.
Amazon also this week reported weakness in its cloud computing unit and worse-than-expected revenue and profit.
Jassy tried to convince investors on the earnings call that the investment in the “once-in-a-lifetime” AI opportunity was worth it.
“I think that both our business, our customers and shareholders will be happy, medium to long-term, that we’re pursuing the capital opportunity and the business opportunity in AI,” Jassy said.
“We also have capex that we’re spending this year in our stores business, really with an aim towards trying to continue to improve the delivery speed and our cost to serve.”
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