Highlights
- Amazon is investing $100 billion in AI to boost its AWS cloud business.
- CEO Andy Jassy warns that AI growth will be “lumpy” due to capacity constraints.
- Amazon stock dropped 4% after providing a weaker-than-expected Q1 outlook.
- Chinese AI startup DeepSeek is offering cheaper AI models, raising competition concerns.
- Jassy argues that lower AI costs will increase demand, not reduce spending.
- RBC Capital and William Blair analysts remain bullish on Amazon’s AI strategy.
- Amazon expects AI demand to rise, despite short-term challenges in cloud expansion.
Amazon (AMZN) is diving deep into artificial intelligence, planning a massive $100 billion AI investment this year. According to CEO Andy Jassy, AI represents the biggest technology shift since the internet.
However, Amazon’s cloud division, Amazon Web Services (AWS), is facing challenges in keeping up with demand, causing what Jassy calls “lumpy” growth.
Amazon’s fourth-quarter earnings beat expectations, but its stock dropped over 4% after it provided a weaker-than-expected first-quarter outlook.
Investors remain cautious, particularly as rising AI costs and competition from Chinese startup DeepSeek add pressure to the market.
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Amazon Sees Cloud Growth Constraints
Jassy highlighted that AWS is struggling to build enough data centers and acquire high-performance chips to meet growing AI demand.
He reassured investors that Amazon’s $26.3 billion capital expenditure in Q4 is a good indicator of what spending will look like each quarter in 2025.

Despite AWS reporting triple-digit AI revenue growth, Jassy acknowledged that supply constraints are limiting its potential expansion. “We could be growing faster if not for some of the constraints on capacity,” he explained.
Amazon is not alone in this challenge. Microsoft (MSFT) and Google (GOOGL) have also reported similar struggles in scaling their AI and cloud businesses.
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DeepSeek Raises Competition Concerns
Amazon’s AI investment is also under scrutiny after DeepSeek, a Chinese startup, launched a powerful large language model (LLM) at a much lower cost than leading competitors such as OpenAI and Amazon-backed Anthropic.
Investors worry that if AI services become cheaper, cloud spending might slow down.
However, Jassy dismissed this concern, arguing that lower AI costs actually drive more demand rather than reducing spending.

He explained that while AI inference (running data through models) is becoming more affordable, history has shown that cheaper technology often leads to increased overall spending.
Amazon is already making moves to stay competitive by offering DeepSeek models through AWS, ensuring businesses can access cost-effective AI solutions on its platform.
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Analysts Remain Bullish on Amazon’s AI Strategy
Despite the stock drop, analysts continue to support Amazon’s long-term AI vision. RBC Capital Markets analyst Brad Erickson reaffirmed an “outperform” rating and increased his Amazon stock price target to $265 from $255.
He believes AWS’s high-margin AI growth will ultimately justify the heavy spending.
Similarly, William Blair analysts Dylan Carden and Arjun Bhatia see Amazon’s AI investment as a long-term positive. They argue that cheaper AI inference will accelerate AI adoption, benefiting AWS as more companies turn to its services.
AWS’s full-stack AI offering positions Amazon as a key partner for businesses looking to integrate AI into their operations, the analysts added.
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The Road Ahead for Amazon’s AI and Cloud Business
Amazon’s $100 billion AI investment signals its commitment to staying at the forefront of artificial intelligence. While capacity constraints may cause short-term challenges, the company is confident that AI demand will continue to rise.
Jassy remains optimistic, emphasizing that AWS is generating billions in AI revenue annually and growing at an impressive rate. If supply chain challenges ease later in 2025, Amazon’s cloud and AI business could see significant acceleration.
For now, Amazon is betting big on AI, and investors will be watching closely to see if that investment pays off.
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