Amazon sees 50% boost to capital spending this year, shares tumble

This move aligns Amazon with its industry peers in a spending spree, leading to an 11.5% drop in its stock after hours.

CEO Andy Jassy defended the company's investment strategy in a call with investors, contrasting Amazon’s AI growth with that of its competitors.

"It’s a different situation to see 24% year-over-year growth on an annualised run rate of $142 billion compared to higher percentage growth on a smaller base," Jassy remarked, referencing the success of Amazon Web Services (AWS).

In the December quarter, AWS generated $35.6 billion in revenue, while Google Cloud grew by 48% to $17.75 billion, and Microsoft’s Azure rose by 39%.

Amazon’s significant spending in AI reflects a broader trend in Big Tech, with the four largest hyperscalers, Amazon, Microsoft, Google, and Meta, projected to collectively invest over $630 billion this year.

However, Amazon’s $200 billion commitment to AI in 2026 has sparked investor concerns over the enormous costs associated with the artificial intelligence boom.

The company’s forecast for first-quarter operating income ranges between $16.5 billion and $21.5 billion, which includes $1 billion related to the higher costs of its satellite internet business, Leo.

Analysts had expected a profit of $22.04 billion, according to LSEG data.

Dave Wagner, portfolio manager at Aptus Capital Advisors, noted that the market is wary of the substantial capital expenditures needed to support such growth rates, saying, "The market just dislikes the substantial amount of money that keeps getting put into capex."

Although Amazon Web Services accounts for only 15% to 20% of Amazon’s total sales, it generates over 60% of the company’s operating profit.

AWS’s fourth-quarter sales growth of 24% marked the biggest increase in 13 quarters but was overshadowed by the company’s increasing capex.

During the earnings call, Jassy highlighted AWS’s recent offerings, including over 1,000 new applications, a competitive AI-powered customer service bot, and live sports alerts, underscoring the company’s deep integration of AI to enhance customer experience.

In addition to AI investments, Amazon is focusing on expanding its e-commerce business, particularly in rural US areas, and enhancing its delivery capabilities.

The company is also targeting the perishable foods market while investing in Whole Foods to compete with rivals like Walmart and Costco.

Despite asset impairments of $610 million related to its physical stores unit, Amazon continues to innovate in its retail strategy.

Meanwhile, Amazon’s advertising business is thriving, with sales rising 22% in the fourth quarter to $21.3 billion.

The company is also integrating AI options into Prime Video to allow marketers to create ads with minimal human input.

Despite the ongoing investments, Amazon laid off 14,000 corporate employees in the quarter and an additional 16,000 earlier in the year.

These layoffs were attributed to efficiency improvements driven by AI and a shift in corporate culture.

However, the company’s workforce at the end of 2025 was 21,000 higher than the same period in 2024.

Reuters