Amazon Forecasts Over 50% Capital Spending Surge Amid AI Push, Shares Decline
- tech360.tv
- 6 hours ago
- 4 min read
Amazon projects an increase of more than 50% in capital expenditures this year, joining other major technology companies in a spending drive to build artificial-intelligence infrastructure. The forecast sent its shares down 9% in after-hours trading.
This substantial investment signals that Big Tech is continuing its significant AI investments without slowing down. Amazon shares closed down 4.4% during regular trading, reflecting deepening concerns about the considerable costs associated with the artificial-intelligence boom.
The top four hyperscalers, comprising Amazon, Microsoft, Alphabet’s Google, and Meta, are expected to collectively spend over USD 630 billion this year.
Amazon also predicted a first-quarter profit range whose lower end would fall short of analysts' expectations by a quarter. This forecast accounts for approximately USD 1 billion in higher costs related to its high-speed internet business Leo, investments in quick commerce, and sharper prices in its international stores.
The company anticipates investing around USD 200 billion in capital expenditures across Amazon in 2026, compared with approximately USD 131 billion in 2025. Amazon's first-quarter operating income forecast of USD 16.5 billion to USD 21.5 billion disappointed, missing analysts' estimate of USD 22.04 billion.
Recent technology earnings have conveyed a clear message from Wall Street: soaring AI spending can only continue if companies demonstrate proportionate operational or financial returns.
Dave Wagner, a portfolio manager at Aptus Capital Advisors, commented on Amazon's results, stating, "We wanted to see more of a consecutive cadence of strong earnings growth and that's just not happening here." Wagner added that "The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates."
Google’s capital expenditure forecast of USD 175 billion to USD 185 billion for the year received investor approval, as the company reported strong growth in its cloud revenue. Similarly, Meta’s plan to spend between USD 115 billion and USD 135 billion also passed without significant investor pushback.
However, investors punished Microsoft’s stock after its cloud unit growth narrowly exceeded estimates. For Amazon, the world's largest cloud-services provider, enterprise demand for both AI infrastructure and core digital migration workloads has been robust.
Despite this strong demand, industry-wide capacity constraints have limited Amazon’s ability to fully meet it. The company invested heavily in the fourth quarter to alleviate these constraints.
It launched its AI infrastructure project "Rainier," bringing nearly half a million of its in-house Trainium2 chips online. These chips are primarily intended for use by Claude chatbot-maker Anthropic.
Asit Sharma, a senior investment analyst at The Motley Fool, noted that Amazon’s high projected spending in 2026 will exceed operating cash flow. Sharma suggested that "This hardly assuages investors' fears that Amazon and fellow Big Tech peers are dialling up the risk of an overspend on AI infrastructure."
Although Amazon Web Services is a smaller unit, contributing 15% to 20% of overall sales, it generates over 60% of the company's operating profit. Its fourth-quarter sales growth of 24% was the largest in 13 quarters, but this was overshadowed by the company's capital expenditure surge.
By comparison, Amazon’s rivals Google Cloud and Microsoft’s Azure boosted sales by 48% and 39%, respectively, in last year's final quarter.
CEO Andy Jassy adopted a defiant tone during the company's conference call to discuss results, critiquing competitors and highlighting AWS's numerous new offerings. Jassy remarked, "As a reminder," he said. "It's very different having 24% year-over-year growth on USD 142 billion annualised run rate, than to have a higher-percentage growth on a meaningfully smaller base, which is the case with our competitors."
Amazon has also been investing in its e-commerce business, aiming to attract more customers. This includes expanding into rural areas in the United States, enhancing its same-day and next-day delivery capabilities, and deepening its focus on perishable foods.
However, Amazon recorded USD 610 million in asset impairments primarily linked to its physical stores unit, which encompasses Amazon Go and Amazon Fresh grocery stores. The company indicated a retreat from physical stores by closing all Fresh and Go locations and converting some into Whole Foods sites.
The company has implemented major changes in its retail division, with the latest bet being an expansion of its Whole Foods footprint. This also includes a 225,000-square-foot mega-store designed to compete with retailers such as Walmart and Costco.
Amazon’s advertising business continues to be a highlight. Sales increased by 22% in the fourth quarter to USD 21.3 billion, and Jassy stated that the company has incorporated AI options into Prime Video. These allow marketers to create advertisements with limited human interaction.
The Seattle-based company laid off 14,000 corporate employees in the quarter and an additional 16,000 earlier this year. Amazon attributed these reductions to efficiencies gained from AI use and a desire to alter corporate culture. Despite the layoffs, the company ended the year with 21,000 more employees than in the same period in 2024.
Amazon forecasts a capital expenditure increase of over 50% this year, contributing to a 9% decline in shares after hours.
The company's first-quarter profit outlook missed analysts' expectations due to costs from its Leo business, quick commerce, and international pricing.
Amazon plans to invest approximately USD 200 billion in capital expenditures in 2026, compared to USD 131 billion in 2025.
Source: REUTERS