Reuters – On Thursday, Amazon announced a projected increase of over 50% in capital expenditures for this year, aligning with its industry peers in a significant investment push to develop artificial intelligence infrastructure. This announcement led to an 11.5% drop in its shares during after-hours trading.
The news that Amazon plans to invest $200 billion in its AI initiatives by 2026 was met with skepticism, prompting CEO Andy Jassy to adopt a defensive stance during the company’s investor call. This contrasted with Alphabet executives’ confident presentation the previous day, as Google demonstrated its progress in AI software development.
“As a reminder,” Jassy stated, referring to Amazon Web Services’ performance, “it’s very different having 24% year-over-year growth on a $142 billion annualized run rate, than to have a higher-percentage growth on a meaningfully smaller base, which is the case with our competitors.”
Amazon Web Services (AWS) reported revenue growth to $35.6 billion in the December quarter, while Google Cloud achieved a 48% increase to $17.75 billion. During the same period, Microsoft Azure experienced a 39% surge.
Amazon’s results highlight that major technology companies are not slowing their substantial investments in AI. Amazon shares ended the regular trading session down 4.4%, as concerns grew about the high costs associated with the AI boom.
The leading hyperscalers—Amazon, Microsoft, Google, and Meta—are collectively expected to spend over $630 billion this year. Recent tech earnings indicate that Wall Street has a clear message for tech firms: continued AI spending is acceptable only if accompanied by corresponding operational or financial returns.
Amazon also projected first-quarter operating income between $16.5 billion and $21.5 billion, factoring in approximately $1 billion related to increased costs in its high-speed satellite internet business, Leo. Analysts had estimated a profit of $22.04 billion, according to LSEG.
“The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates,” commented Dave Wagner, portfolio manager at Aptus Capital Advisors.
Analysts largely praised Google’s impressive capital expenditure forecast, as the company reported strong growth in its cloud revenue, despite a 3% dip in its shares on Thursday. Similarly, Meta’s capital expenditure plans were well-received. However, Microsoft faced investor backlash last week after its cloud unit’s growth barely exceeded expectations.
Amazon’s anticipated spending for 2026 will exceed its operating cash flow, noted Asit Sharma, senior investment analyst at The Motley Fool. D.A. Davidson analyst Gil Luria remarked, “Amazon has to invest at these levels just to stay in the race.”
Amazon Web Services, while a smaller segment of Amazon’s overall operations, contributes 15% to 20% of total sales but generates over 60% of the company’s operating profit. The fourth-quarter sales growth of 24% was the largest in 13 quarters, though this achievement was overshadowed by the company’s surge in capital expenditures.
During the nearly hour-long post-earnings call, Jassy highlighted AWS’s new offerings, including more than 1,000 new applications, a competitive AI-based customer service bot, and live sports alerts.
“We are being incredibly scrappy,” Jassy stated. “In every one of our businesses, you see a very broad use of AI to improve the customer experience and, in many cases, just to completely reinvent what was possible before.”
Amazon has also been investing in its e-commerce business, aiming to attract more customers by expanding into rural areas in the United States, enhancing same-day and next-day delivery capabilities, and expanding its presence in perishable foods.
However, Amazon recorded $610 million in asset impairments, primarily related to its physical stores unit, which includes Amazon Go and Amazon Fresh grocery stores. The company is scaling back its physical store presence by closing all Fresh and Go locations and converting some into Whole Foods outlets.
Amazon’s latest venture involves expanding Whole Foods’ footprint and developing a 225,000-square-foot mega-store to compete with retailers like Walmart and Costco.
Amazon’s advertising business remains a strong point, with sales increasing by 22% in the fourth quarter to $21.3 billion. Jassy mentioned that the company has integrated AI options into Prime Video, enabling marketers to create ads with minimal human intervention.
The Seattle-based company laid off 14,000 corporate employees in the quarter and an additional 16,000 earlier this year, citing efficiencies gained from AI use and a desire to transform corporate culture. Nevertheless, Amazon ended the year with 21,000 more employees than the same period in 2024.
