Why Amazon Stock Dropped 11% Last Month

Core Insights - Amazon's shares dropped 10.7% in February despite reporting strong financial results for 2024, primarily due to concerns over a projected $100 billion expense [1][4] Financial Performance - Amazon achieved a record operating income of $68.6 billion in 2024, an 86% increase year over year, nearly matching the total of the previous three years combined [2] - The cloud-computing platform AWS contributed over half of the operating income, with net sales growing by 19% to exceed $100 billion [2] Industry Trends - The growth of AWS is being fueled by increased interest in artificial intelligence (AI), as enterprises are turning to AWS for AI application development [3] Capital Expenditures - Amazon plans to spend $100 billion in capital expenditures (capex) for 2025, with the majority allocated to AI for AWS [4] - Previous capex spending was $48.1 billion in 2023 and $77.7 billion in 2024, indicating a significant increase in investment [4] Profit Outlook - Management anticipates a $700 million decrease in operating income for 2025 compared to 2024, which may concern investors [5] - Despite the expected decline, 2025 is projected to be Amazon's second most profitable year ever, with only a 1% drop in operating income [7] Competitive Necessity - To maintain AWS's growth and competitiveness, Amazon must invest in AI capabilities to meet customer demands [8] - Amazon's financial position allows for this level of investment, having spent nearly $78 billion in capex in 2024 while still generating $38 billion in free cash flow [9]