Amazon warns of cloud capacity constraints despite $100B AI investment plan

Amazon cautions investors over cloud capacity troubles in 2025. The company believes it may fail to meet customer demand for its cloud computing devices despite planning to spend roughly $100 billion in the segment.

Chief Executive Officer Andy Jassy said that hardware shipment delays and inadequate electricity supply are likely to interfere with the company’s cloud services delivery. He even argued that the company would be growing much faster were it not for the capacity troubles.

Amazon hints at more cloud capacity issues linked to chip supply delay and power constraints

Andy Jassy wants the firm to grow into an AI marketplace; however, he fears its growth in that direction could be a little shaky.

He argued that hardware shipment delays, particularly chips, and insufficient power supply, would derail its cloud computing offerings, even adding that they deterred them from bringing in new data centers.  However, Jassy is optimistic that the impact of these constraints will subside in the second half of 2025.

So far, Amazon has invested over $26.3 billion in capital expenditures during the last three months of 2024, with the bulk of the spending directed toward AI-related projects within AWS. Much of its spending paid off, with the company seeing a 19% surge in its AWS revenue in the last quarter of 2024, making it the third time Amazon saw 19% growth in its cloud unit.

Sky Canaves, a market analyst at Emarketer, commented on AWS’s steady 19% growth, suggesting that the company is still grappling with the same capacity challenges affecting Google and Microsoft.

Amazon expects AI to curtail its earned profits

Growing concerns over cloud capacity shrouded Amazon’s strong performance in its e-commerce and logistics segment at the end of 2024. Amazon’s e-commerce sales topped those of Walmart Inc., Temu, and Shein.

The company even saw its quarterly revenue surge by 10%, settling at $187.8 billion by December 31. Moreover, its operating profit was $21.2 billion, and its operating costs were $166.6 billion, which, in retrospect, is less than its Q4 revenue.

So far this year, its stock has surged by nearly 9% after a 44% rise in 2024. Nevertheless, the company expects its AI spending to eat into its gains. Amazon projected its operating income to range between $14 billion and $18 billion in Q1 2025. 

The quarterly sales could be as high as $155.5 billion, compared with an average estimate of $158.6 billion.

Amazon is still preparing to release its long-awaited Alexa generative artificial intelligence voice service and has scheduled a press event to preview it later this month.

Once released, it would mark the most significant upgrade to the product since its initial introduction accelerated a wave of digital assistants more than a decade ago.

Earlier this week, Amazon sent press invites to an event in New York on February 26 featuring Panos Panay, the head of its devices and services team. 

The new generative AI-powered Alexa represents at once a huge opportunity for Amazon, which counts more than half a billion Alexa-enabled devices in the market, and a tremendous risk. Amazon hopes the revamp, designed to converse with users, can convert some of its hundreds of millions of users into paying customers to generate a return for the unprofitable business.

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