Amazon | AWS, AI & Ads

Amazon is set to invest over $100 billion in 2025 outspending every other company

How do they afford it? well well

While other major tech firms return cash to shareholders, Amazon reinvests all its earnings. Compare the buybacks and dividends in FY24:
Apple: $110 billion
Alphabet: $62 billion
Microsoft: $39 billion
Meta: $35 billion
Amazon: $0 billion

That’s right Amazon returned nothing to shareholders last year. Instead, it sticks to its "Day 1" philosophy, prioritizing innovation and long term growth over short term payouts

AI: The Next Big Shift

CEO Andy Jassy believes AI is the most significant opportunity in decades:

“Virtually every application today will be reinvented with AI, with inference becoming as fundamental as compute, storage, and databases. AI is the biggest opportunity since cloud and possibly since the Internet itself.”

Amazon’s Q4 FY24 Performance

Revenue Breakdown:
Online stores (40%): +7% YoY
Physical stores (3%): +8% YoY
Third-party seller services (25%): +9% YoY
Advertising (9%): +18% YoY
Subscriptions (6%): +10% YoY
AWS (15%): +19% YoY

Overall revenue grew 10% YoY to $188 billion, surpassing expectations by $0.6 billion

North America: +10% YoY to $106 billion
International: +8% YoY to $40 billion

Key Financials

Gross margin: 47% (+2pp YoY)
Operating margin: 11% (+4pp YoY)
AWS: 37% margin (+7pp YoY)
North America: 8% margin (+2pp YoY)
International: 3% margin (+4pp YoY)
EPS: $1.86 (beating estimates by $0.38)

Cash Flow & Balance Sheet

Operating cash flow (TTM): $116 billion (+36% YoY)
Free cash flow (TTM): $38 billion (+4% YoY)
Capital expenditures: Up 57% to $83 billion
Cash reserves: $101 billion
Long-term debt: $53 billion

2025 Outlook & Market Trends

AWS remains steady at 19% growth, though supply chain constraints limit its full potential. Management expects these issues to ease in H2 2025.
AI investment surge: Amazon plans a 20% increase in capital expenditures, focusing on AI, making it the biggest spender in Big Tech.
Advertising strength: Ad revenue surged 18% YoY, with Amazon gaining market share from Google and YouTube.
Ecommerce resilience: Despite cautious spending, online sales grew 8% YoY, and third-party services rose 9% YoY.
Guidance fell short: Q1 2025 revenue is projected at $151-$155.5 billion, lower than the $158 billion estimate, partly due to FX and the leap year effect.
AI first strategy: Jassy emphasized Amazon’s custom AI chips (Trainium 2) as a cost saving edge, with Trainium 3 coming in late 2025.

AI & AWS Market Position

Cloud Market Trends

Global cloud infrastructure spending hit $91 billion in Q4 2024, growing 22% YoY. Half of this growth came from AI services.
AWS leads with a 30% market share, ahead of:
Microsoft Azure (21%)
Google Cloud (12%)
Tier two providers like CoreWeave, Oracle, Snowflake, and Databricks are also expanding rapidly.

While Azure (+31% YoY) and Google Cloud (+30% YoY) saw slower growth, AWS maintained steady 19% YoY growth from a much larger base.

AWS’s operating margin hit 37% (+7pp YoY), though management expects fluctuations as AI investments ramp up.

Amazon’s Three Layer AI Strategy

1️⃣Infrastructure
- Custom AI chips (Trainium, Inferentia) to cut costs and boost efficiency.
- Trainium 2 offers 30-40% better price performance than GPUs.
- Project Rainier: A massive AI cluster with hundreds of thousands of Trainium 2 chips

2️⃣Models
- Bedrock: Amazon’s LLM-as-a-Service platform.
- New AI models: Luma AI, Poolside, DeepSeek R1, and Amazon’s Nova series, which reportedly delivers 75% lower costs than competitors

3️⃣Applications
- Amazon Q: AI assistant for software development.
- Rufus: AI powered shopping assistant.
- Alexa AI Overhaul: A smarter, more interactive Alexa.
- Enterprise AI adoption: New AI partnerships with Intuit, PayPal, Reddit, Japan Airlines, and more.

What’s Next?
Amazon vs Shein & Temu

A U.S. tariff loophole (de minimis exemption) allows imports under $800 to skip duties, benefiting Shein and Temu.
A recent policy reversal has created uncertainty for these ecommerce giants.
Amazon’s response? Amazon Haul a budget friendly storefront competing directly with Shein & Temu.

If the tariff loophole disappears, Amazon’s logistics dominance could give it a competitive edge

Amazon’s Expanding Ad Business

Amazon’s Q4 ad revenue hit $17.3 billion, making up :
32% of Google Search ads revenue
37% of Meta’s ad revenue
165% of YouTube’s ad revenue

Amazon flipped the switch in Q1 2024, shifting all Prime users to an ad supported tier unless they pay 2.99/month to go ad free

Streaming Market Share
Prime Video now accounts for 4.0% of U.S. TV time, up from 3.3% YoY

Amazon’s reach
Netflix: 90M U.S. members (+12% YoY)
Prime: 194M U.S. members (+10% YoY)

Unlike Netflix, Prime Video’s audience isn’t solely there for content it’s an all in one membership, making Amazon’s ecosystem harder to leave.

Amazon’s strategy remains clear: reinvest aggressively, dominate AI, and leverage its ecosystem to fuel long term growth

Stay tuned for what’s next