Amazon shares plunged Thursday night after the tech giant unveiled $200 billion in capital spending plans for this year. Additionally, management’s missed earnings forecast for the current quarter overshadowed an otherwise generally positive final quarter of 2025. According to estimates compiled by LSEG, sales rose 14% year-on-year to $213.39 billion, exceeding expectations of $211.33 billion. LSEG said generally accepted accounting principles (GAAP) earnings per share rose 5% to $1.95, below expectations of $1.97. Operating profit rose 18% year over year to $24.97 billion, beating the consensus estimate of $24.77 billion. Amazon’s operating profit included three special charges, which had a negative impact of approximately $2.4 billion on operating profit. Why Own Your Own Company Amazon is widely known for online shopping, but its real moneymaker is its cloud business. Advertising is also a high-margin, fast-growing business. Investments in a robust e-commerce logistics infrastructure make the company’s online storefront the place to be. Prime allows users to continue paying monthly with free shipping and video streaming, along with many other perks. Competitors: Walmart, Target, Microsoft, Alphabet Recent Purchases: April 15, 2025 Purchases Started: February 2018 Conclusion Let’s take a closer look at why Amazon stock fell nearly 11% in after-hours trading, extending the overall market slump with selling in Magnificent Seven and other tech stocks this week. The important thing here is that the reported fourth quarter of 2025 was actually strong. Bulls wanted Amazon Web Services’ revenue growth to accelerate, and the company has delivered. The division reported revenue growth of approximately 24%, increasing revenue by approximately $7 billion year-over-year. The cloud division also achieved better-than-expected profit margins. This is a great achievement, as management must balance profitability and investment. This indicates that there is virtually no wasted capacity. Anything added will be used. The company’s North American and International divisions also expanded year-over-year margins excluding certain expenses in the quarter. So why is the market turning against Amazon? Management is targeting $200 billion in capital spending this year (about $50 billion more than analysts expected), but Wall Street is concerned that those investments won’t be monetized quickly enough to turn a profit. AMZN 5Y Mountain Amazon 5 Years We’ve seen other Mag 7 companies talk about ramping up their investments this earnings season. These include Meta Platforms and Alphabet, which have the same portfolio name, and both passed. Why not Amazon? The market took issue with rising costs without further upside to Q1 2026 sales and profit forecasts. If everyone spends more than expected, higher returns must be supported. Still, Amazon isn’t wasting this capital, it’s investing in the future, and it won’t spend this money without a demand signal. Otherwise it would be reckless. CEO Andy Jassy addressed this on the earnings call, saying, “We have extensive experience in understanding demand signals in the AWS business and translating that ability into strong returns on invested capital, and we believe that is the case here.” This demand was backed up by the numbers. AWS ended the quarter with a $244 billion backlog. That’s up 40% year-over-year and 22% quarter-over-quarter, and is several billion dollars more than the $240 billion in cloud balances that Alphabet reported in its quarterly results Wednesday evening. Amazon believes that aggressive spending will generate strong long-term returns on invested capital, and has little doubt in its judgment. “Customers really want AWS for their core and AI workloads,” Jassy said, and businesses are “monetizing capacity as quickly as they can deploy it.” Guarantees aside, the market doesn’t have the patience at the moment to take any drastic action. But as investors who believe in Amazon long-term, we’re willing to wait it out. Is the sharp drop in stock prices after the earnings call a disappointment?Of course it is. Stock prices have returned to May 2025 levels. We have no choice but to reiterate our rating of 1, the equivalent of Buy, but lower our price target from $275 to $250 per share to account for increased investment and the decline in tech stocks. Explanation Sales of the cloud division Amazon Web Services (AWS) increased 23.6% year-on-year to $35.58 billion, exceeding expectations by about $514 million. The consensus growth forecast was about 21.8%. The quarter saw a significant growth acceleration from 20.2% in the previous quarter. It was also the highest growth rate in 13 quarters. Operating profit and profit margin were also a positive surprise. Returns fell 190 basis points year over year to 35.03% due to heavy investments, but were still better than the consensus estimate of 33.98%. “AWS is now a business with an annual revenue run rate of $142 billion, and our chip business, including Graviton and Trainium, now has an annual revenue run rate of over $10 billion, with triple-digit year-over-year growth,” Jassy said on the conference call. Custom chips have become a major focus for hyperscalers, including Alphabet, who want to reduce their dependence on Nvidia. Nvidia’s general-purpose chips are the gold standard for running and training AI, but they are expensive and difficult to obtain. Amazon and others are investing in their own silicon, aiming to offer cheaper computing, albeit with higher upfront costs. As for the company’s remaining business segments, revenue was strong in other categories, including online stores, subscription services, advertising services, and businesses not included in other segments, such as healthcare, licensing, and co-branded credit cards. Only brick-and-mortar stores and third-party seller services fell short of consensus forecasts. By region, sales in North America rose 10% to $127.08 billion, but missed consensus estimates by $149 million. Reported operating margin was 9.03%, expanding 102 basis points year-over-year and beating expectations of 8.51%. International segment revenue increased 17% year over year, beating consensus estimates. Reported operating margin contracted 98 basis points to 2.05%, below expectations of approximately 3.96%. However, this segment was negatively impacted by the $1.1 billion special charge mentioned above. Without this impact, operating margin would have expanded year over year. On the capital expenditure front, Amazon invested approximately $39.5 billion in the fourth quarter, beating consensus estimates of $35 billion. The company spent $128 billion in capital expenditures for the year. As mentioned above, Amazon expects its capital spending to reach $200 billion in 2026, well above the $146.6 billion expected by analysts. This number is higher than Alphabet’s estimate of $175 billion to $185 billion and Meta’s estimate of $115 billion to $135 billion. “Due to extremely strong demand for our existing products and creative opportunities, including AI, chips, robotics and low-earth orbit satellites, we expect to invest approximately $200 billion in capital investment across Amazon in 2026 and see strong long-term returns on invested capital,” Jassy said in an earnings press release. Guidance Amazon’s Q1 2026 guidance was mixed. The company expects net sales to increase 11% to 15% year over year to $173.5 billion to $178.5 billion. This midpoint of $176 billion is above the consensus of $175.6 billion. Operating profit for the first quarter is expected to be between $16 billion and $21.5 billion. The midpoint of $18.75 billion was a far cry from $22.18 billion. The company noted that costs for its broadband satellite business, Amazon Leo (officially known as Project Kuiper), increased by $1 billion from a year ago. Even without that, it was still a terrible mistake. Management has a history of under-promising and over-delivering, no doubt in a technology-squeezed market. (The Jim Cramer Charitable Trust is long AMZN, META, GOOGL, NVDA. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. 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