Amazon’s Capital Spending Forecast and Market Reactions
On Thursday, Amazon projected a significant increase—over 50%—in its capital spending for the year. This aligns with similar moves by other tech giants as they ramp up investments in artificial intelligence infrastructure. Following this announcement, Amazon’s shares fell by 9% in after-hours trading.
This trend indicates that major tech firms aren’t slowing down on their AI investments anytime soon. During regular trading, Amazon’s stock already decreased by 4.4%, reflecting ongoing concerns about the hefty costs associated with the AI surge.
The top four hyperscalers—Amazon, Microsoft, Alphabet’s Google, and Meta—are expected to collectively exceed $630 billion in capital spending this year.
During a conference call regarding the results, CEO Andy Jassy maintained a bold stance, criticizing competitors while highlighting the numerous new services offered by Amazon Web Services. Interestingly, Amazon’s projected profit margin for the first quarter is anticipated to be a quarter lower than analysts had expected due to approximately $1 billion in increased expenses tied to its high-speed internet venture, Leo, as well as investments in international projects and rising prices.
The company aims to invest around $200 billion in capital by 2026, up from approximately $131 billion in 2025. Unfortunately, Amazon’s first-quarter operating profit forecast, ranging from $16.5 billion to $21.5 billion, fell short of analysts’ expectations of $22.04 billion.
Recent earnings from tech companies suggest Wall Street has a clear message: the rise in AI spending needs to be matched by substantial operational or financial returns.
“We were hoping for another streak of strong earnings growth, and that’s not happening here,” remarked Dave Wagner, a portfolio manager at Aptus Capital Advisors, in response to Amazon’s results.
It seems that the market is reluctant to see continued high growth rates alongside aggressive capital expenditures.
On a positive note, Google’s impressive capital spending forecast of $175 billion to $185 billion and Meta’s projection of $115 billion to $135 billion were well-received by investors, particularly with Meta’s strong growth in cloud revenues.
Conversely, Microsoft’s stock was down last week despite its cloud segment outperforming expectations slightly.
Despite the challenges, Amazon, the leading provider of cloud services, is facing strong enterprise demand for both AI infrastructure and essential digital migration tasks. However, industry-wide capacity limits are hindering its ability to meet that demand fully.
In the fourth quarter, Amazon invested heavily to alleviate these constraints, launching an AI infrastructure project called “Rainier” while activating nearly half a million internal Trainium2 chips, mainly for use by Anthropic, the company behind the Claude chatbot.
Asit Sharma, an investment analyst at The Motley Fool, noted that the anticipated spending for 2026 would likely exceed operating cash flow. “This raises concerns among investors regarding the risk of overspending on AI infrastructure by Amazon and its competitors,” he added.
Although a smaller part of Amazon’s portfolio—contributing only 15% to 20% of total sales—its cloud platform, Amazon Web Services (AWS), provides over 60% of its operating profits. Notably, AWS’s sales growth of 24% in the fourth quarter was the largest in over three years, but it was overshadowed by the steep rise in capital spending.
When compared, Google’s Cloud and Microsoft’s Azure witnessed revenue growth rates of 48% and 39%, respectively, in the last quarter of the previous year.
During the conference call, Jassy adopted a defiant tone, emphasizing, “Achieving 24% year-over-year growth at an annualized run rate of $142 billion is very different from achieving higher growth rates on a significantly smaller base, as with our competitors.”
Additionally, Amazon is channeling investments into its e-commerce sector, aiming to expand its reach in rural areas across the U.S., enhance same- and next-day delivery options, and delve into fresh food offerings.
However, Amazon also reported a $610 million asset impairment charge, mainly stemming from its physical retail sector, which includes stores like Amazon Go and Amazon Fresh. The company has decided to exit physical retail by closing all Fresh & Go locations and converting some into Whole Foods stores.
In a significant realignment of its retail strategy, Amazon is focusing on expanding Whole Foods locations and launching a large megastore intended to rival Walmart and Costco.
Furthermore, the company’s advertising sector remains strong, with fourth-quarter sales jumping 22% to $21.3 billion. Jassy highlighted that they are integrating AI features into Prime Video, enabling marketers to develop ads with minimal human oversight.
Throughout the previous quarter, Amazon laid off 14,000 employees and an additional 16,000 earlier this year. While these layoffs were deemed necessary for efficiency improvements through AI and cultural shifts within the company, it’s interesting to note that Amazon still ended the year with 21,000 more employees compared to the previous year.
