AM and FBI are not abbreviations, they are acronyms.
We know to pronounce them letter by letter because they are fully capitalized. In some cases, they also have periods after each letter (with no spaces). Never ever sound them out (unless it's to show the character is saying them wrong).
"It's 4 AM," she said.
Note I fixed the punctuation and changed 4:00 to 4 because the former is pronounced "four o'clock."
"4AM" and "4am" and "4 am" are all acceptable variations (if you need to abide by a usage guide like APA or Chicago, they may have opinions on which ones are acceptable).
An abbreviation is pronounced like it appears, or occasionally will be said in full, depending on the context.
The feds are on to us!
"Feds" stands for "federal government officials" and is pronounced "feds."
Mrs. Smith's class was amazing this week.
"Mrs." was originally short for "mistress" but now is pronounced "missus." (Note that the American form uses a period but the British form does not.) Likewise, "Mr." is always pronounced "mister."