Amazon beat Wall Street’s expectations for the fourth quarter, driven by strong cloud growth, AI investments, and a robust holiday shopping season. However, the company issued a gloomy outlook for the first quarter, prompting its stock to drop by about 2% in after-hours trading.

The e-commerce giant reported revenue of $187.8 billion, a 10% year-over-year increase, and earnings per share of $1.86. Amazon (AMZN+0.84%) recently overtook Walmart in annual revenue for the first time, driven largely by its web-based services.

“The holiday shopping season was the most successful yet for Amazon,” said Andy Jassy, Amazon’s CEO, in a statement.

Despite the strong earnings, Amazon’s outlook for the current quarter fell short of expectations.

The company projected first-quarter net sales of $151.0 billion and $155.5 billion, below the $158.6 billion analysts had anticipated, according to FactSet (FDS+0.43%). Amazon also cited a $2.1 billion currency impact and $1.5 billion in sales from Leap Day last year.

In the fourth quarter, Amazon reported cloud-computing revenue of $28.8 billion, up 19% year-over-year.

Outside of earnings, Amazon is navigating challenges, including potential tariffs on Chinese imports. While rivals like Temu and Shein could be impacted, Amazon’s strong U.S. infrastructure, fast shipping, and fewer tariff-related issues position it well. To compete with the fast-fashion giants, Amazon launched the low-cost Haul platform in Nov. 2024.

Despite struggles with physical stores, Amazon’s delivery network thrives, setting new speed records in 2024, with nine billion items arriving same or next-day globally. U.S. Prime members saved an estimated $95 billion on shipping last year, according to Amazon.