The rise in AI infrastructure budgets has triggered a notable drop in software stocks, a phenomenon some are dubbing the “SaaSpocalypse.”
This year’s journey for software stocks has been quite the rollercoaster. In January, numerous high-growth software firms, notably large cloud service providers, were thriving thanks to sustained demand for artificial intelligence (AI).
However, in recent weeks, the scenario has shifted dramatically. Paradoxically, the very factor driving down these stocks is…AI. So far in 2026, Amazon has seen a decline of 11%. Yet, February saw an even steeper drop, with stock prices falling about 15%.
Let’s unpack what led Amazon into this slump during the SaaSpocalypse and explore if this might be a chance for savvy investors to seize the moment or if it’s time to flee.
What’s Causing Amazon’s Stock Price to Dive?
Earlier this month, Amazon shared its earnings report for the fourth quarter and the entirety of 2025. The e-commerce segment performed robustly, driven by strong consumer spending over the holiday period.
Moreover, Amazon Web Services (AWS) surprised many by seeing a significant uptick in its revenue, especially as competition heats up against rivals like Microsoft‘s Azure and Google Cloud Platform (GCP).
Despite these positive signs, Wall Street found reasons to offload Amazon stock. The main issue? Management has planned for up to $200 billion in annual capital spending this year, considerably exceeding the $150 billion analysts had anticipated.
Amazon’s Free Cash Flow Faces Pressure—and Wall Street Isn’t Happy
The motivation behind Amazon’s surge in capital spending primarily revolves around AI. The company is heavily investing in building data centers, developing custom training and inference chips, launching low-orbit satellites, and backing generative AI developers.
Projected sales for Amazon in 2025 are set to rise 12% from the previous year, reaching $717 billion, with earnings per share (EPS) expected to rise about 30%. While this appears solid, Wall Street is starting to worry about Amazon’s cash flow.
Last year, Amazon’s trailing 12-month free cash flow plummeted 71% from $38.2 billion in 2024 to merely $11.2 billion by the end of 2025. Management suggests this drop stems from ongoing investments in AI.
As seen, Amazon’s excess cash flow is dwindling faster than its profit growth. Consequently, Wall Street is beginning to view the company’s increased capital expenditures as potentially unwise.
Anthropic: Amazon’s Under-the-Radar Catalyst
Following Microsoft’s investment in OpenAI in early 2023, Amazon made its own move by investing in Anthropic, a competing AI platform. Anthropic is working on a large-scale language model called Claude that rivals ChatGPT.
Over recent years, Anthropic has integrated closely with AWS, utilizing Amazon’s proprietary Trainium and Inferentia chips to train generative AI models, bolstering products within the AWS ecosystem like Amazon Bedrock.
As big players like Microsoft and Amazon embed LLM into their cloud services, revenue and operating profit have grown. However, it’s important to recognize that such growth often takes time to materialize.
In the latest quarter, AWS posted $35.6 billion in revenue, leading to an annual total of $142 billion for this segment. Notably, AWS’s 24% growth year-over-year marked its highest in three years.
While AWS’s growth hasn’t kept pace with Amazon’s escalating capital expenditure budget, it demonstrates that AI can generate substantial revenue. To me, it’s clear that generative AI represents the initial phase of the ongoing AI revolution. Big tech is progressing toward building infrastructure to support the next generation of services in robotics, autonomous systems, agent AI, and more.
Though Amazon’s free cash flow is likely to continue its decline in the near term, the long-term gains from its infrastructure investments in AI could greatly outweigh these immediate concerns. Still, investors seem to be missing the broader perspective. Thus, Amazon stock is now trading near its lowest in a decade based on forward price-to-earnings trends.
Despite potential short-term profitability shrinkage, this situation should be fleeting. As the stock price dips, discerning investors recognize that Amazon’s standing in the AI landscape, bolstered by investments such as Anthropic, makes its long-term outlook decidedly appealing.
For these reasons, I believe now is an opportune moment to consider buying Amazon stock.
