Amazon’s consumer hardware division, a business historically designed to act as a gateway to its retail and subscription ecosystem, is facing significant financial headwinds. Internal planning documents reveal that the company is forecasting a $612 million gross loss for its first-party devices business this year, a figure that sharply exceeds the $438 million loss target established by leadership.
The deepening deficit is being driven primarily by surging costs for memory components. These rising expenses are forcing the company into what internal documents describe as “difficult trade-offs” regarding sales volumes, average selling prices, and gross profit margins. Notably, the projected $612 million loss represents only the gross level; it does not include the substantial investments Amazon makes in research and development, sales and marketing, or general administrative overhead.
The global spike in memory chip prices is a byproduct of the ongoing artificial intelligence boom. As tech giants invest hundreds of billions into AI infrastructure, manufacturers have shifted production capacity toward high-bandwidth memory (HBM) for data center servers. This shift has tightened the supply for the more standard memory components used in consumer electronics, including tablets, e-readers, and smart home devices. Amazon finds itself on both sides of this trend, expecting to spend roughly $220 billion in capital expenditures this year—mostly on AWS data centers for AI—while simultaneously seeing its consumer hardware margins eroded by the resulting component shortages.
In response to these pressures, Amazon has begun a significant overhaul of its product strategy. This month, the company effectively phased out the long-running Fire tablet brand in favor of a more expensive lineup of “Alexa Tablets.” These new devices, powered by the Alexa+ AI system, are priced between $229.99 and $499.99, marking a notable departure from the budget-friendly price points that defined the Fire era. Other products, including Echo speakers, Kindle e-readers, and Fire TV devices, also saw price adjustments as early as August.
The internal documents also shed light on the immense costs of operating generative AI at scale. Amazon is currently reassessing the financial model for Alexa+, with internal forecasts suggesting cloud infrastructure costs for the service could hit $1.7 billion by 2026. To mitigate these expenses, the company is attempting to transition away from third-party models, such as those from Anthropic, in favor of its own proprietary, lower-cost AI systems.
Strategic investments continue despite the financial squeeze. Amazon recently introduced new Kindles, Ring smart locks, and AI-enabled wearables under its Bee brand. However, some high-cost initiatives are being scrutinized. “Project Moonraker,” an internal effort to equip Alexa with advanced AI-agent capabilities, was projected to require more than $100 million in GPU spending this year alone. Leadership has reportedly considered delaying or scaling back Moonraker to help stabilize the hardware division’s bottom line.
Amazon is not alone in navigating these challenges. Other major hardware players, including Apple, Microsoft, and Sony, have also implemented price hikes for computers and gaming consoles. Similarly, major PC manufacturers like Dell, HP, and Lenovo are grappling with the same component cost volatility. For Amazon, the challenge is maintaining the reach of its hardware ecosystem without allowing the per-unit losses to become unsustainable in an era of high-priced silicon.
