Amazon.com shares slid 9% today after the company outlined a planned $200 billion capital outlay for the year, stoking investor concerns about the scale of Big Tech’s spending on artificial intelligence.
Amazon yesterday joined rivals in forecasting sharply higher expenditures this year, as US tech giants now aim to pour more than $630 billion into data centers and the AI chips that power them, an unprecedented level of investment.
Investors expected the companies to ramp up spending after they pinned their futures to the technology, but some analysts said the size of the increases surprised the market and raisedquestions about whether returns can keep pace.
“While the rising capital intensity is not a surprisedirectionally, the magnitude of the spend is materially greaterthan consensus expected,” Moffett Nathanson analysts said,referring to Amazon’s prediction for a 50% outlay jump.
The surge in spending has revived comparisons with the dot-com era boom of the early 2000s, which helped build themodern internet but delivered only modest returns for manycompanies that financed the underlying infrastructure.
Amazon’s forecast also landed amid broader volatility tiedto AI expectations.
Shares of Microsoft and Alphabet, Amazon’s two biggest cloud rivals, fell after their earnings, even as new technology from the AI startups they backtriggered a rout in software stocks and intensified a debate over an existential threat to the sector.
The S&P 500 software and services index hasshed about $1 trillion in market value since January 28.
AJ Bell investment director Russ Mould said the declinesreflected a move away from stocks “where positive surprises maybe hard to achieve and it is easier to disappoint than many maythink.”
He said hyperscalers, or large cloud companies, are nowmoving from an asset-light model to a more capital-intensiveone, with capex growth far outstripping sales growth.
Amazon was set to lose around $200 billion in market value if the losses hold. It trades at a price-to-earnings ratio of27.01, compared with Microsoft’s 21.62 and Alphabet’s 28.36.
TECH EXECUTIVES CONFIDENT ABOUT SPENDING
Big Tech CEOs have so far remained undeterred by doubts over the spending, promising that returns from AI will far outweigh what they see as the cost of competing in a high-stakes race.
Amazon Chief Executive Andy Jassy echoed that sentiment onthe post-earnings call, defending Amazon Web Services’ revenue growth of 24% that was slower than rivals Google Cloud’s 48% growth and Microsoft’s Azure 39% rise.
“As a reminder,” he told analysts, AWS is a much larger business than its competitors and sustaining that level ofgrowth on such a large base is different.
Some analysts backed his argument but said that spending left no space for mistakes.
“We do not think they would be spending $200 billion in FY26 if they did not have the appropriate demand signals, but the margin of error is shrinking,” Moffett Nathanson analysts said.
