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Amazon Shares Drop on Weak Cloud Growth and Disappointing Forecast REWRITING TEXT:

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Amazon.com shares declined by as much as 5% in extended trading on Thursday after the company reported weaker-than-expected cloud computing growth and a lower sales forecast for the first quarter of 2025. The decline erased about $90 billion in market value before stabilizing at a 4.2% drop.

Amazon Chief Financial Officer Brian Olsavsky indicated that capital expenditure for 2025 would remain consistent with last year’s fourth-quarter spending of $26.3 billion, driven primarily by investments in artificial intelligence (AI) software development.

The company forecast revenue for the first quarter in the range of $151 billion to $155 billion, falling short of analysts’ average estimate of $158 billion. This gap persists even after adjusting for a $2 billion negative impact from the absence of a Leap Day.

Amazon Web Services (AWS) posted a 19% revenue increase to $28.79 billion, narrowly missing analysts’ expectations of $28.87 billion. CEO Andy Jassy attributed the slower AWS growth to inconsistent chip supplies from third-party partners, which constrained capacity.

Investor impatience with Big Tech’s extensive capital spending on AI has grown. Daniel Morgan, senior portfolio manager at Synovus Trust, noted that slowing growth across Amazon’s cloud and retail segments is concerning, especially as competitors such as China’s DeepSeek gain ground in the AI space.

Amazon’s AI investments were showcased at its annual AWS conference in December, where the company introduced new AI models. Its Alexa generative AI voice service is also slated for release later this month after being delayed due to quality concerns.

The company’s retail business provided a cushion, with online sales growing 7% to $75.56 billion, exceeding estimates of $74.55 billion. Advertising sales rose 18% to $17.3 billion, just shy of the expected $17.4 billion.

Amazon forecast an operating profit of $14 billion to $18 billion for the first quarter, missing the average estimate of $18.35 billion. Despite the challenges, Amazon’s fourth-quarter revenue of $187.8 billion slightly surpassed expectations of $187.30 billion. The company also nearly doubled its net income to $20 billion, reporting earnings of $1.86 per share compared to estimates of $1.49 per share.

AI-Driven Shopping Boosts Online Holiday Sales, Salesforce Data Shows

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AI-powered chatbots and other digital tools significantly contributed to a nearly 4% year-over-year increase in U.S. online sales during the 2024 holiday season, according to Salesforce data. Retailers harnessed AI-driven customer service features such as conversational chatbots, targeted promotions, and personalized product recommendations to attract shoppers seeking trending products and the best deals.

From November 1 to December 31, U.S. online sales reached $282 billion, up from $272 billion in 2023, surpassing Salesforce’s initial 2% growth forecast, despite more restrained discounts. AI-based chatbots saw a 42% increase in usage compared to the previous year, with Salesforce analyzing data from 1.6 trillion page views to reach this conclusion.

Globally, AI-driven sales grew to $229 billion, compared to $199 billion in 2023. While AI was a major growth driver, a concerning 28% product return rate, up from 20% in 2023, was highlighted as a potential drag on profit margins for retailers, according to Caila Schwartz, director of Consumer Insights at Salesforce.

“Retailers who have embraced AI and agents are already seeing the benefits, but these tools will be even more critical in the new year as retailers aim to minimize revenue losses on returns and re-engage with shoppers,” Schwartz said.

The report also noted that mobile shopping peaked on Christmas Day, with 79% of all orders made through smartphones during the holiday season. Social media platforms like TikTok Shop and Instagram helped drive 14% of all traffic to e-commerce sites.