Key points
- Amazon projected a $612 million gross loss on devices
- Rising memory costs pressured Amazon's hardware margins
- Amazon planned to cut Alexa+ costs by using Claude less
Amazon (AMZN) projected a $612 million gross loss on its devices this year as rising memory costs squeezed hardware margins, Business Insider reported on October 27. The August forecast put the loss $174 million above management's $438 million target.
The document said memory costs were forcing "difficult trade-offs" over sales volumes, pricing, and gross profit. It also called for a closer look at the AWS cloud costs behind Alexa+, the AI version of Amazon's voice assistant. An Amazon spokesperson declined to comment.
Amazon shares traded at $250.90 in premarket trading at 8:34 a.m. Eastern on October 27, up from the previous day's close of $249.09.
Device revenue wasn't expected to cover costs
The projected gross loss means device revenue would fall short of the associated cost of sales, even before research and development, marketing, and administrative expenses.
Amazon has long used inexpensive hardware to bring customers into its shopping, subscription, and digital content businesses, where it can earn additional revenue.
The company raised prices on Echo speakers, Kindle e-readers, and Fire TV devices in August, when the document was prepared. This month, it replaced its 15-year-old Fire tablet line with Alexa Tablets running Alexa+, priced from $229.99 to $499.99.
AI data centers are pulling memory away from gadgets
Data center spending has raised demand for memory chips, and manufacturers have moved capacity to the high-bandwidth memory used in AI servers. That has tightened supply and raised prices for components used across consumer electronics. Chip suppliers described shortages on October 24, even as some forecasts point to a memory glut in 2029.
Apple (AAPL) has raised prices on some Macs and iPads, and Microsoft (MSFT) and Sony (SONY) have raised console prices. Amazon itself expects about $220 billion in capital spending this year, mostly for AWS data centers, which put it on our capex vs. cash flow scoreboard.
Alexa+ cloud costs were forecast at $1.7 billion
Separately, forecasts prepared in early 2026 put AWS cloud costs for Alexa+ at about $1.7 billion this year, nearly triple the year before, according to documents reported in July. Alexa+ was projected to run about 60% above Amazon's target for cloud cost per monthly active user. Even after finding about $450 million in potential savings, internal reviews concluded the business would miss its financial targets.
To cut those costs, internal roadmaps called for moving specialized Alexa "Experts" from Anthropic's Claude Sonnet to Amazon's own models and for Alexa+ to stop calling Claude when a cached answer was available. Amazon has invested $13 billion in Anthropic, which made its IPO filing public on October 26.
A separate project called Moonraker, meant to give Alexa more advanced AI-agent abilities, was projected to need more than $100 million of GPU spending this year. Amazon considered delaying or scaling it back as one way to ease cost pressure.
"Reducing the cost per unit in AI will unleash AI being used as expansively as customers desire, and also lead to more overall AI spending," Amazon CEO Andy Jassy wrote in his shareholder letter last year. Amazon reports third-quarter results after the market closes on October 29.
