Amazon's stock declines as investors are alarmed by Big Tech's AI expenditure plans

Amazon Shares Drop 8% as Massive AI Spending Plan Sparks Investor Concerns

Amazon shares fell 8% in premarket trading on Friday after the company’s aggressive capital expenditure plans intensified investor concerns over Big Tech’s escalating spending on artificial intelligence.

Tech giants are expected to spend more than $600 billion on AI this year, raising doubts about immediate returns from such heavy investments. Investors also worry that rapidly improving AI tools could reduce demand for traditional software, squeeze margins, and trigger a broader selloff across the tech sector.

Amazon’s capital expenditure is projected to reach $200 billion in 2026. Meanwhile, Alphabet said its capex could double year-over-year, while Meta and Microsoft have also ramped up spending.

“While the rising capital intensity is not a surprise directionally, the magnitude of the spend is materially greater than consensus expected,” MoffettNathanson analysts said in a note.

Unlike Alphabet’s confident outlook, Amazon CEO Andy Jassy struck a more cautious tone during the post-earnings call. Referring to Amazon Web Services (AWS), he said, “It’s very different having 24% year-over-year growth on a $142 billion annualized run rate than having higher-percentage growth on a meaningfully smaller base, which is the case with our competitors.”

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

Analysts noted that Amazon likely sees strong demand signals to justify such spending but warned that the margin for error is shrinking. Following the results, at least five brokerages cut their price targets for the stock.

Amazon currently trades at a price-to-earnings ratio of 27.01, compared with Microsoft’s 21.62 and Alphabet’s 28.36.