(Feb 7): Amazon.com Inc warned investors that it could face capacity constraints in its cloud computing division despite plans to invest some US$100 billion (RM442.22 billion) this year, with most of the money going towards data centres, homegrown chips and other equipment to provide artificial intelligence (AI) services.

Chief executive officer Andy Jassy, determined for Amazon to become an AI supermarket, is spending big to retain the company’s edge in cloud-computing services. Still, he warned growth would be “lumpy” and hinted Amazon could face capacity issues related to delays in getting hardware and not having sufficient electricity.

“It is true we could be growing faster were it not for some of the constraints on capacity,” Jassy said on a conference call on Thursday after the release of fourth-quarter results.

The concerns echo those of rival Microsoft Corp, which last week said its cloud sales growth was hurt because it didn’t have enough data centres to handle demand for its AI products.

Jassy said the supply of chips — from third parties and Amazon’s own chip design unit — and power capacity are limiting the ability of Amazon Web Services to bring new data centres online. Those constraints will likely ease in the second half of 2025, he said.

Amazon spent US$26.3 billion in capital expenditures in the last three months of 2024, the vast majority of which went toward AI-related projects within AWS. Jassy told analysts on the call that the amount was “reasonably representative” of the rate of outlays the company planned to make in 2025.

The company reported that AWS revenue jumped 19% to US$28.8 billion in the quarter ended Dec 31. It was the third straight period of 19% growth for the cloud unit. Operating income generated by the unit was US$10.6 billion, exceeding the average projection of US$10.1 billion.

“AWS growth did not accelerate as anticipated and instead matched 3Q levels, indicating that the company is challenged by the same types of capacity constraints facing rivals Google and Microsoft,” said Sky Canaves, an analyst at Emarketer.

Jassy’s warning on AWS growth constraints overshadowed a fairly strong holiday quarter, suggesting the company’s main e-commerce and logistics business is fending off competition from Walmart Inc and discount upstarts like Temu and Shein. 

The shares declined about 3% in premarket trading on Friday after closing at US$238.83 in New York. The stock has gained 8.9% so far this year after a 44% jump in 2024.

The AI race will likely weigh down profits. Operating income will be US$14 billion to US$18 billion in the period ending in March, the Seattle-based company said in a statement. Analysts, on average, projected US$18.2 billion, according to data compiled by Bloomberg. First-quarter sales will be as much as US$155.5 billion, compared with an average estimate of US$158.6 billion.

While Amazon’s overall quarter was generally positive, “investors immediate concerns are around 1Q guidance, which was below expectations, mostly because of the impact of a big currency drag and the impact of lapping a leap year,” said Gil Luria, an analyst at DA Davidson & Co. The company said the extra day in the quarter in 2024 boosted sales by about US$1.5 billion.

Total revenue in the holiday quarter increased 10% to US$187.8 billion, slightly ahead of analyst estimates. Operating profit was US$21.2 billion, compared with the average estimate of US$18.8 billion. 

Total operating expenses rose 6.2% to US$166.6 billion — marking the eighth consecutive quarter that Amazon’s revenue increased at a higher rate than costs. The company employed more than 1.55 million full- and part-time workers at the end of the quarter, a 2% increase from a year earlier.

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