Amazon sees 2026 capex higher than estimates

Amazon Q4 2023 Earnings Report Analysis

Key Concepts:

• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, and equipment.
• Hyperscalers: Large-scale cloud computing providers, like Amazon Web Services (AWS), Google Cloud, and Microsoft Azure.
• AWS (Amazon Web Services): Amazon’s cloud computing subsidiary, a major revenue and profit driver.
• Subscription Services: Revenue generated from services like Amazon Prime memberships.
• Operating Income: A company’s profit from its core business operations.
• Aftermarket/After Hours Trading: Trading that occurs after the regular stock market has closed.

I. Financial Results – Q4 2023

Amazon’s Q4 2023 results revealed a mixed performance. Net sales reached $213.39 billion, exceeding the Bloomberg estimate of $211.49 billion. A breakdown of sales figures is as follows:

• Online Store Net Sales: $82.98 billion (vs. estimate of $82.3 billion) – a slight beat.
• Physical Stores Net Sales: $5.86 billion (vs. estimate of $5.88 billion) – a slight miss.
• Subscription Services Net Sales: $13.12 billion (vs. estimate of $12.74 billion) – a beat.
• AWS Net Sales: $35.58 billion (vs. estimate of $34.88 billion) – a significant beat.

However, Earnings Per Share (EPS) came in at $1.95, slightly below the estimate of $1.96. This resulted in initial negative market reaction.

II. First Quarter Outlook & Capex Announcement

Amazon projects first quarter net sales between $173.5 billion and $178.5 billion, aligning with the consensus estimate of $175.54 billion. The most significant news, and the primary driver of the aftermarket sell-off, was the announcement of a $200 billion capital expenditure (capex) plan for 2026. This figure dramatically exceeds the previous estimate of $146.1 billion.

III. Market Reaction & Expert Analysis – Alonzo Munos (Hamilton Capital Partners)

The announcement of the substantial capex increase triggered a significant drop in Amazon’s stock price during after-hours trading, falling 8.3% or $184.30, to $242.60. Alonzo Munos, Chief Investment Officer at Hamilton Capital Partners, acknowledged the market’s negative reaction but framed the investment as necessary for Amazon to maintain its leadership position in the rapidly evolving AI infrastructure landscape.

Munos stated, “This is what we’ve been seeing as a trend in the market. These hyperscalers… tremendous capbacks… it really is a race to build out the AI infrastructure and to be a leader.” He emphasized that Amazon’s strength lies not only as a tech company but also as a global consumer-facing business.

He further noted the importance of scrutinizing AWS, as it constitutes a significant portion of Amazon’s operating income and is increasingly crucial for future growth, particularly in a potentially slowing economy. While acknowledging the AWS beat, he emphasized the need to analyze margins and overall performance.

IV. Focus on AWS & Subscription Services

The discussion highlighted AWS as a key metric for investors, with the $35.58 billion in net sales being a positive indicator. However, Munos stressed the need for continued growth in cloud services to drive future prospects.

Beyond AWS, subscription services, particularly the rollout of Alexa Plus and partnerships with OpenAI, were identified as crucial areas for revenue growth in 2026 and beyond. Munos stated the need for Amazon to “think outside the box” and differentiate itself in a competitive market.

V. Amazon’s Strategic Positioning & Future Outlook

Munos described Andy Jassy’s leadership as positioning Amazon as “the next world’s largest startup,” despite recent job cuts (both in October and more recently). He emphasized the importance of the upcoming earnings call for providing clarity on how Amazon intends to translate the $200 billion capex investment into tangible returns for shareholders. He suggested that the current stock dip could present an opportunity for investors who believe in the company’s long-term vision.

VI. Data & Statistics Recap

• Q4 2023 Net Sales: $213.39 billion (vs. estimate $211.49 billion)
• Q4 2023 EPS: $1.95 (vs. estimate $1.96)
• Q1 2024 Net Sales Forecast: $173.5 - $178.5 billion (estimate $175.54 billion)
• 2026 Capex: $200 billion (vs. estimate $146.1 billion)
• After-Hours Stock Drop: 8.3% ($184.30 drop to $242.60)
• AWS Q4 Net Sales: $35.58 billion (vs. estimate $34.88 billion)

Conclusion:

Amazon’s Q4 2023 earnings presented a mixed bag. While revenue generally beat expectations, the significant increase in planned capex for 2026 overshadowed the positive results, leading to a substantial stock price decline. The market is closely watching Amazon’s ability to effectively deploy this capital and generate a return on investment, particularly within AWS and its expanding subscription services. Expert analysis suggests that the investment is strategically necessary for long-term leadership in the AI infrastructure race, but requires careful execution and clear communication to regain investor confidence.