Amazon’s revenue outlook for Q1 came in below estimates.Amazon (AMZN) stock was drifting lower on Friday after the ecommerce and cloud computing giant reported its fourth quarter earnings.The upshot of the report was that Q4 earnings were strong, beating estimates, but the outlook was disappointing, which likely caused the selloff. The stock was down about 4% on the day.In the quarter, Amazon beat revenue estimates, bringing in $187.8 billion in net sales, a 10% increase. This squeaked past estimates of $187.3 billion.Net income climbed 88% to $20 billion in the quarter, or $1.86 per share. That blew away estimates of $1.49 per share. The keys were cost containment, as expenses only grew 6%, favorable provision for income taxes, which is the amount of taxes the company expects to pay this year, and lower interest expenses due to lower interest rates.But the outlook for Amazon was not quite as strong. Strong holiday shopping season boosts net salesAmazon’s cash cow is Amazon Web Services (AWS), its cloud computing business. It is the leader in this space but has faced increasing competition from mainly Microsoft and Alphabet.If you look at the company’s revenue, it mostly comes from ecommerce, as some 85% of its revenue comes from Amazon.com sales. In Q4, net sales in North America was $115.6 billion, up about 10% year over year. International net sales hit $43.4 billion, a roughly 8% increase. Net sales were boosted by a holiday shopping season that CEO Andy Jassy called the “most successful yet for Amazon.”But this segment accounts for only about half of Amazon’s net income — $9.2 billion in North America and $1.3 billion internationally.The bulk of the income comes from AWS. Its net sales in the quarter were $28.8 billion, up 19% year over year, which pales in comparison to ecommerce revenue. But because it is such a high margin business, AWS’s operating income is $10.6 billion, which is slightly more than ecommerce. AWS operating income gained some 47% in the quarter due to the revenue increase, but also solid cost containment. It was mostly in line with Wall Street analysts’ projections.There is not too much to complain about here. But investors were concerned about the outlook. Weaker net sales in Q1While still the leader in cloud computing, AWS’s two main competitors are growing more quickly. Microsoft grew cloud revenue by 31% last quarter while Alphabet increased it by 31%. As of the end of the third quarter, AWS had 31% market share while Microsoft had 20% and Alphabet 12%. AWS has been steadily losing market share, as it owned about 41% of the market in 2020.That could deteriorate further. In its outlook for Q1, Amazon called for overall net sales of between $151.0 billion and $155.5 billion – a 5% to 9% growth rate. If the growth rate was 5%, it would be the weakest year over year growth rate for Amazon since its inception, according to various sources, including CNBC. It is also well below estimates of $158.5 billion in net sales.Amazon management cited an “unusually large, unfavorable impact of approximately $2.1 billion, or 150 basis points, from foreign exchange rates.” Further, operating income is anticipated to be $14 billion to $18 billion, which is below Q4 results, but better than the $15.3 billion in the first quarter of 2024. Lumpy growth aheadOn the earnings call, Jassy cited some capacity constraints that have and likely will slow AWS growth – meaning there is not enough infrastructure to keep up with AI demand. That is being addressed through projects like Stargate, and others, that are looking to build out infrastructure.Amazon itself is upping its capital expenditures. On the earnings call, Jassy said the company spent some $26 billion on capital expenditures in Q4, which was almost twice what was spent in Q4 2023. Jassy said that is a reasonable run rate for all of 2025, so that would suggest some $104 billion spend on capex this year, up from around $80 billion in 2024. Jassy said the vast majority of that will be spent on AI for AWS.“The faster we grow, the more capex we end up spending because we have to procure data centers and hardware and chips and networking gear ahead of when we’re able to monetize it,” Jassy said on the call. “We don’t procure it unless we see significant signals of demand. And so, when AWS is expanding its capex, particularly in what we think is one of these once-in-a-lifetime type of business opportunities like AI represents, I think it’s actually quite a good sign, medium to long term, for the AWS business.”But in the meantime, the CEO also indicated that growth could be “lumpy.”“AWS is a reasonably large business by most standards, and though we expect growth will be lumpy over the next few years as enterprise adoption cycles, capacity considerations, and technology advancements impact timing, it’s hard to overstate how optimistic we are about what lies ahead for AWS’ customers and business,” he said.The question is, can Amazon turn that capex into profits in an increasingly competitive space? Analysts were mostly positive on the report, with several raising price targets. But the median price target is just $235 per share, which suggests 2% growth. 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