Amazon’s stock saw a decline after the company’s first-quarter revenue forecast fell short of analyst expectations. While this dip may have caused concern among investors, the broader picture remains positive. Over the past year, Amazon’s stock has risen by 35%, reflecting its continued growth and strategic investments.
The company remains highly optimistic about its artificial intelligence (AI) initiatives, calling AI a transformative force comparable to the internet’s impact. With aggressive expansion plans, strong financials, and a dominant position in multiple industries, Amazon’s outlook remains a topic of debate among investors.
Major Investments in AI and Cloud Computing
Amazon is making a substantial push into AI, allocating $100 billion in capital expenditures for 2024, primarily to enhance AI infrastructure. The company believes that as AI inference costs decline, further investment in AI-related technologies will accelerate.
Amazon Web Services (AWS), its cloud computing division, continues to be a critical growth driver. AWS revenue climbed 19% to $28.8 billion, while operating income surged 47% to $10.6 billion. The division has been expanding its AI-driven services, with rapid adoption of its Bedrock and SageMaker platforms, which allow businesses to build AI applications.
To further strengthen its AI capabilities, Amazon introduced Nova, a foundational AI model, and the DeepSeek R1 models. The company has also highlighted the performance advantages of its custom-built AI chips, which offer 30-40% better cost efficiency compared to GPU-powered alternatives. Tech giants such as Qualcomm and Adobe have already begun testing these chips, while Anthropic is leveraging Amazon’s Trainium 2 chip for its next-generation AI models. Trainium 3 is expected to launch by year-end, enhancing Amazon’s AI ecosystem further.
E-Commerce and Advertising Maintain Steady Growth
Amazon’s core e-commerce business continues to grow despite its massive scale. North American sales increased 10% to $115.6 billion, while international sales rose 8% to $43.4 billion. Improved operational efficiencies contributed to a 43% increase in North American operating income, reaching $5.7 billion. International operations also turned profitable, generating $1.3 billion in operating income compared to a $419 million loss the previous year.
Advertising remains another key revenue stream, growing 18% to $17.3 billion. The company noted strong performance in sponsored ads and Prime Video ads, which are gaining traction. The Amazon Marketing Cloud continues to enhance advertisers’ ability to optimize their campaigns, driving increased engagement and higher returns.
Subscription services, which include Prime memberships, increased 10% to $11.5 billion, demonstrating sustained consumer loyalty. Third-party seller services and online store revenue also saw steady growth, rising 9% and 8%, respectively. Even Amazon’s physical retail segment, including Whole Foods and Amazon Fresh, experienced 8% growth, signaling resilience in brick-and-mortar operations.
Mixed Q1 Guidance Raises Concerns
Despite Amazon’s strong financial performance, its Q1 2024 guidance failed to meet market expectations, leading to the stock’s decline. The company forecasts revenue between $151 billion and $155.5 billion, reflecting 5% to 9% growth—falling short of the $158.5 billion anticipated by analysts.
Amazon cited external challenges impacting its projections, including a $1.5 billion revenue loss due to the leap year effect and a $2.1 billion foreign currency headwind. While these factors are temporary, they contributed to investor uncertainty.
The company anticipates quarterly operating income to be between $14 billion and $18 billion, surpassing the $15.3 billion recorded in Q1 2023.
Should Investors Buy the Dip?
Amazon’s investment strategy has historically positioned it for long-term success, even when short-term financial results appear weaker. The company’s AI expansion, custom chip development, and growing cloud business provide strong competitive advantages. Despite near-term constraints in cloud computing capacity, AWS remains a dominant force in the industry.
E-commerce growth continues at a steady pace, with improvements in efficiency contributing to higher profitability. Meanwhile, advertising and subscription services are emerging as high-margin revenue streams that bolster Amazon’s overall financial health.
At a forward price-to-earnings (P/E) ratio of around 30x for 2025, Amazon’s valuation sits below historical levels, making the stock more attractive for long-term investors. While its Q1 guidance was softer than expected, Amazon has a track record of navigating investment cycles successfully. Given its strong position in AI, cloud computing, and e-commerce, the recent stock decline could offer a strategic investment opportunity for those focused on long-term growth.