Amazon Shares Slip as Aggressive AI Spending Drives Capex

Key Moments

Capex Surge and Market Reaction

Amazon projected that its capital spending would rise by more than 50% this year, aligning itself with other large technology firms that are ramping up investments in artificial-intelligence infrastructure. The guidance immediately pressured the stock, which fell 11.5% in after-hours trading.

Investor concern intensified on news that Amazon intends to commit $200 billion toward AI-related initiatives in 2026. As the stock slid, CEO Andy Jassy took a defensive stance on the company’s earnings call, a noticeably different tone from executives at Alphabet, who presented a more confident posture the prior day while discussing Google’s AI software progress.

AWS Performance Versus Rivals

Jassy highlighted the scale of Amazon Web Services (AWS) in response to comparisons with competitors. “As a reminder,” he said while discussing AWS’s performance, “it’s very different having 24% year-over-year growth on $142 billion annualized run rate, than to have a higher-percentage growth on a meaningfully smaller base, which is the case with our competitors.”

AWS revenue reached $35.6 billion in the December quarter. By comparison, Google Cloud’s revenue rose 48% to $17.75 billion, while Microsoft’s Azure business grew 39% over the same period.

Despite AWS’s strong quarter, Amazon’s stock closed down 4.4% in regular trading, as investors focused on the mounting costs associated with the AI build-out.

Wall Street Scrutinizes AI Spending

Amazon’s latest results underscore that major technology companies are not easing up on AI-related expenditures. The top four hyperscalers – Amazon, Microsoft, Google and Meta – are expected to spend more than $630 billion this year.

Recent earnings across the sector suggest that investors are increasingly demanding clear operational or financial payoffs from AI investments. Analysts broadly reacted positively to Google’s substantial capital expenditure outlook in light of strong cloud revenue growth, even though Alphabet shares declined 3% on Thursday. Meta’s capex plans also drew support. By contrast, Microsoft’s stock came under pressure last week after its cloud unit growth only slightly exceeded expectations.

Commenting on sentiment around Amazon’s plans, Dave Wagner, portfolio manager at Aptus Capital Advisors, said, “The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates.”

2026 Investment Outlook and Profit Guidance

Analysts highlighted the scale of Amazon’s forward-looking spending. Asit Sharma, senior investment analyst at The Motley Fool, said Amazon’s projected spending in 2026 will exceed its operating cash flow. D.A. Davidson analyst Gil Luria added: “Amazon has to invest at these levels just to stay in the race.”

For the first quarter, Amazon projected operating income in a range of $16.5 billion to $21.5 billion. This outlook includes roughly $1 billion tied in part to higher costs at its high-speed satellite internet unit, Leo. Analysts had been looking for profit of $22.04 billion, according to LSEG.

AWS: Profit Engine Under Capex Shadow

Although AWS accounts for only about 15% to 20% of Amazon’s total sales, it generates more than 60% of the company’s operating profit. The unit’s 24% sales growth in the fourth quarter marked its fastest pace in 13 quarters. Nevertheless, that performance was overshadowed by the sharp acceleration in capital spending.

Jassy used much of the roughly hour-long post-earnings call to emphasize AWS’s product pipeline. He said AWS has more than 1,000 new applications that have launched or are on the way, including an AI-powered customer service bot and live sports alert capabilities.

“We are being incredibly scrappy,” Jassy said. “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.”

Retail Strategy, Physical Store Restructuring

Alongside its AI and cloud investments, Amazon has been channeling capital into its e-commerce operations. The company has focused on drawing more shoppers by extending its reach into rural U.S. markets, enhancing same-day and next-day delivery, and expanding its presence in perishable foods.

At the same time, Amazon recognized $610 million in asset impairments, largely tied to its physical stores segment, which includes Amazon Go and Amazon Fresh grocery locations. The company is scaling back its physical store ambitions by shutting all Fresh and Go outlets and converting some of those sites into Whole Foods stores.

Amazon’s latest strategic move in brick-and-mortar retail is to grow the Whole Foods network and launch a 225,000-square-foot mega-store designed to compete with large-format retailers such as Walmart and Costco.

Advertising Momentum and Workforce Changes

Advertising remained a strong growth driver. Amazon’s ad revenue climbed 22% in the fourth quarter to $21.3 billion. Jassy said the company has integrated AI tools into Prime Video, enabling marketers to produce ads with limited human intervention.

On the cost side, the Seattle-based company reduced headcount by 14,000 corporate employees in the quarter and cut another 16,000 earlier in the year. Amazon has said these layoffs were driven by efficiency gains from AI and a broader effort to reshape its corporate culture. Despite the reductions, the company ended the year with 21,000 more employees than in the same period in 2024.