Amazon is set to make a massive investment in its cloud infrastructure, planning to spend approximately $100 billion this year on Amazon Web Services (AWS). This significant outlay is part of the company’s strategy to maintain its competitive edge against rivals Google and Microsoft in the rapidly evolving artificial intelligence (AI) landscape.
On Thursday, Amazon’s stock experienced a more than 4% drop in after-hours trading. This followed the company’s projection of an operating income ranging from $14 billion to $18 billion for the current quarter, which ends in March. This forecast fell short of analysts’ expectations. Furthermore, the company’s anticipated revenue, between $151 billion and $155.5 billion, also failed to meet the projected targets, adding to investor concern. A substantial portion of the disappointing financial results can be attributed to the capital expenditures on AI infrastructure.
In the fourth quarter, which concluded in December, Amazon’s spending reached $26.3 billion. According to Amazon CEO Andy Jassy, the company anticipates spending a similar amount each quarter throughout 2025, totaling about $100 billion for the year. “The vast majority of that Capex [capital expenditure] is on AI for AWS,” Jassy stated during an earnings call.
Jassy defended the increased spending compared to the $75 billion invested last year, citing the growing demand for AI cloud services, and the need for their infrastructure to keep pace. “AI represents, for sure, the biggest opportunity since cloud, and probably the biggest technology shift in business since the internet,” Jassy asserted. He added, “So, 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.”
Amazon’s primary competitors in the cloud market, Alphabet (Google’s parent company) and Microsoft, are also committing tens of billions of dollars annually to data centers, chips, servers, and other infrastructure to support their AI services. Alphabet announced plans to spend $75 billion in 2025 to support AI in Google Cloud. Meanwhile, Microsoft President Brad Smith revealed that the company would invest $80 billion on AI infrastructure for its Azure cloud by the conclusion of the current fiscal year in June.
Scott Sinclair, an analyst at Enterprise Strategy Group (now part of Omdia), noted the inherent advantages of cloud platforms. He explained that the “stickiness” of cloud providers’ platforms justifies their substantial investments in AI. Businesses that initially store their AI data in the cloud are likely to maintain that arrangement, as migrating it on-premises proves to be a complex undertaking, with the analyst continuing, “Every AI win for a cloud vendor should pay dividends well into the future.”
A study conducted by ESG, published in July, revealed that enterprises are more than twice as likely to choose public clouds for their AI initiatives compared to their private data centers. Jassy also expects that enterprises will increase their spending on AWS as the prices of AI services drop due to innovations that decrease the cost associated with models and related technologies. He highlighted advancements such as DeepSeek, a Chinese reasoning model optimized on Nvidia GPUs, as a catalyst for potentially lower AI service pricing in the long run.
However, Jassy refuted the notion that these cost reductions would translate to an overall decline in technology spending. He said, “Sometimes people make the assumption that if you’re able to decrease the cost of any type of technology component … that somehow it’s going to lead to less total spend in technology. We’ve never seen that to be the case.” Jassy anticipates an increase in overall spending, as organizations integrate AI into more applications. “I believe the cost of inference will meaningfully come down … [and] it will make it much easier for companies to be able to infuse all their applications with inference and with generative AI.”
AI is a key driver of enterprise spending on cloud infrastructure services. Synergy Research Group estimates that generative AI has been behind half of the cloud market’s growth since 2022, which marked the beginning of the AI buildout with the launch of OpenAI’s ChatGPT. Last year, enterprises spent $330 billion on cloud infrastructure, reflecting an 18% increase from the previous year, according to Synergy. At the close of 2024, Amazon held 30% of the global market share, while Microsoft and Google held 21% and 12%, respectively.
In the fourth quarter that ended in December, Amazon’s net sales rose 10% year-over-year, reaching $187.8 billion, and AWS revenue increased by 19% to $28.8 billion. The company’s net income also saw a significant increase, reaching $20 billion compared to $10.6 billion in the same quarter last year.
