Another giant announces "massive" capital expenditure

On February 5th, local time, Amazon announced its Q4 FY2025 earnings report. The financial report shows that the company achieved revenue of $213.4 billion in the fourth quarter, a 12% year-over-year increase; operating profit was $25 billion. After the release of the earnings report, Amazon’s stock price fell over 11% in after-hours trading.

Looking ahead, Amazon expects first-quarter net sales to be between $173.5 billion and $178.5 billion; operating profit to be between $16.5 billion and $21.5 billion. Amazon President and CFO Andy Jassy estimates that the company’s capital expenditure in 2026 will reach $200 billion, mainly for AWS operations.

Andy stated that this is primarily due to extremely high demand, as customers indeed want to use AWS to handle core business and AI workloads. Amazon is rapidly monetizing capacity, and the company has extensive experience in understanding demand signals for AWS and converting that capacity into strong investment returns. He is confident these investments will yield robust capital returns.

Strong Cloud Business Growth

Up 24% Year-over-Year

In this earnings report, Amazon’s cloud business performed remarkably. The report shows that AWS revenue in Q4 was $35.6 billion, up 24% year-over-year, with an operating profit of $12.5 billion. For the full year, AWS revenue reached $142 billion.

Regarding AWS performance, Amazon CFO Brian Olsavsky said that this acceleration is driven by both core services and AI services, as customers continue to modernize their infrastructure and migrate workloads to the cloud.

In addition to cloud services, AI’s penetration into e-commerce is also a focus. Andy mentioned that Amazon’s AI shopping assistant Rufus has 300 million users, and customers who have used Rufus have a 60% higher purchase conversion rate.

Addressing concerns that external general AI (like ChatGPT) might divert e-commerce traffic, Andy introduced the concept of “agent-based shopping,” believing that consumers will ultimately choose retail AI agents of their own. “Consumers want broad choices, low prices, fast delivery, and trust. Horizontal agents excel at aggregation, but retailers are better at delivering these four points.”

Regarding backlog orders, Andy revealed during a Goldman Sachs survey that Amazon’s backlog is $244 billion, up 40% year-over-year and up 22% quarter-over-quarter. The company has many ongoing deals, with significant demand in both AI and core AWS sectors. Brian added that AWS’s operating profit margin has reached 35%, a 40 basis point increase year-over-year. Although future depreciation and AI investments may pose headwinds, efficiency improvements are offsetting these costs.

Rapid Progress in Low Earth Orbit Satellite Projects

Andy disclosed during the earnings call that Amazon Leo (the low Earth orbit satellite project) has made rapid progress, bringing connectivity to consumers, businesses, and governments in areas without broadband access.

He stated that Amazon’s enterprise terminal Leo Ultra is the fastest satellite internet antenna ever, capable of providing up to 1 Gbps symmetric download speeds and up to 400 Mbps upload speeds. Leo will offer enterprise-level performance and advanced encryption, bypassing the public internet via a secure dedicated network directly connected to AWS.

Currently, Amazon has launched 180 satellites, planning over 20 launches in 2026, over 30 in 2027, and expects to go live commercially in 2026. Andy explained that Amazon has signed dozens of commercial agreements, including with AT&T, DirectTV Latin America, JetBlue, and the Australian National Broadband Network, with more agreements underway.

“Within North America, we expect costs related solely to Amazon Leo to increase by about $1 billion year-over-year,” Brian warned, noting that since most manufacturing and launch service costs are currently expensed directly, this puts pressure on Q1 operating profit guidance.

Regarding self-developed chip business, Andy pointed out that the current pain point in the AI chip market is high costs and lack of supplier incentives to lower prices. “Customers are extremely eager for better cost-performance. Usually, and understandably, those early dominant players are not in a rush to lower prices—they have other priorities. That’s why we are building our own custom chips, Trainium, and it has really taken off,” he said.

He added that over 1.4 million Trainium chips have been produced, making it the fastest ramp-up in Amazon’s history. The newly launched Trainium 3 offers 40% better cost-performance than the previous generation, and supply is expected to be “almost fully booked” by mid-2026.