Amazon is experiencing a significant uptick in capital expenditures, projecting a more than 50 per cent increase this year as it invests heavily in artificial intelligence infrastructure. This bold financial move has resulted in a steep 11.5 per cent decline in its shares during after-hours trading.
In a recent call with investors, CEO Andy Jassy revealed plans for a staggering $200 billion investment aimed at enhancing the company’s AI capabilities by 2026. The announcement coincided with a broader trend among major tech firms, all vying to secure a foothold in the rapidly evolving AI landscape.
Despite these ambitious plans, Jassy adopted a cautious tone, contrasting the confidence displayed by Alphabet executives during Google’s recent earnings call. He noted the challenging comparison between Amazon Web Services (AWS) and its competitors, stating, “It’s very different having 24 per cent year-over-year growth on $142 billion annualised run rate, than to have a higher-percentage growth on a meaningfully smaller base, which is the case with our competitors.”
In the December quarter, AWS revenue reached $35.6 billion, while Google Cloud’s revenue soared 48 per cent to $17.75 billion. Microsoft’s Azure, on the other hand, saw a 39 per cent growth during the same period. These figures illustrate a competitive landscape where each player is racing to capitalise on the AI boom.
Amazon’s decision to ramp up capital spending has raised concerns among investors, with the company’s shares also experiencing a 4.4 per cent drop during regular trading sessions. The total spending by the top four hyperscalers—Amazon, Microsoft, Google, and Meta—is expected to exceed $630 billion this year, a clear indication that the tech sector is not slowing down on AI investments.
Looking ahead, Amazon anticipates first-quarter operating income between $16.5 billion and $21.5 billion, which includes approximately $1 billion tied to increased costs from its satellite internet venture, Leo. Analysts had projected a profit of $22.04 billion, according to LSEG.
Dave Wagner, a portfolio manager at Aptus Capital Advisors, remarked, “The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates.” This sentiment reflects a broader uncertainty about whether such aggressive spending will yield proportional returns.
While Google and Meta received favourable responses to their capital expenditure forecasts, Amazon’s plans have come under scrutiny. D.A. Davidson analyst Gil Luria emphasised the pressure on Amazon to maintain its competitive edge, stating, “Amazon has to invest at these levels just to stay in the race.”
Although AWS contributes only 15 to 20 per cent of Amazon’s overall sales, it generates over 60 per cent of the company’s operating profit. Recent growth in AWS, marked by a 24 per cent increase—the highest in 13 quarters—was overshadowed by the announcement of the capital spending surge.
During the post-earnings call, Jassy highlighted AWS’s innovative strides, mentioning over 1,000 new applications launched or in development, including an AI-based customer service bot and live sports alerts. He stated, “We are being incredibly scrappy,” showcasing the company’s commitment to leveraging AI for enhanced customer experiences.
In addition to its AI investments, Amazon is also focusing on expanding its e-commerce business, particularly in rural areas of the United States. The company is improving its same-day and next-day delivery services while also making inroads into the perishable foods market.
However, not all news has been positive for Amazon. The company reported $610 million in asset impairments, primarily related to its physical stores division, which includes Amazon Go and Amazon Fresh. Amazon is shifting its strategy, opting to close its Fresh and Go stores and convert some locations into Whole Foods outlets.
As part of its growth strategy, Amazon aims to expand Whole Foods, with plans for a new 225,000-square-foot mega-store designed to compete with retail giants like Walmart and Costco. Additionally, its advertising business showed strong performance, with sales increasing by 22 per cent in the fourth quarter to $21.3 billion. Jassy indicated that AI options have been added to Prime Video, allowing marketers to create ads with minimal human involvement.
On the workforce front, Amazon laid off 14,000 corporate employees in the last quarter and an additional 16,000 earlier this year. The company has cited efficiency gains from AI and a desire to shift corporate culture as reasons for these layoffs. Despite these cuts, Amazon finished the year with 21,000 more employees than it had at the same time in 2024.
