The market reaction intensified when Amazon revealed plans to invest roughly $200 billion in AI infrastructure in 2026, underscoring the scale of spending required to keep pace with competitors. That outlook contrasted sharply with Alphabet’s tone on Wednesday, when Google executives appeared more confident about translating AI investments into robust software growth.
AWS Growth Strong, But Investors Want More
During the investor call, CEO Andy Jassy emphasized that Amazon’s scale makes its growth rates look different than those of smaller rivals. “It’s very different having 24% year-over-year growth on $142 billion annualized run rate,” he said, pointing out that Amazon’s AWS cloud division is competing from a much larger base than peers.
AWS revenue grew to $35.6 billion in the December quarter — a notable achievement — but Google Cloud grew 48% to $17.75 billion, while Microsoft’s Azure grew 39% in the same period. Those figures are a reminder that the cloud market is still highly competitive and investors are focused on the speed of growth.
Big Tech Keeps Spending — and the Market Is Watching
Amazon’s results are the latest signal that Big Tech is not slowing AI investment. The four major hyperscalers — Amazon, Microsoft, Google, and Meta — are expected to spend over $630 billion on AI this year, a sum that has investors increasingly wary about the cost of this technological arms race.
Analysts have been sending a clear message: AI spending can continue only if companies show tangible financial returns. The market’s sensitivity was evident in Thursday’s share movements — Amazon shares fell 4.4% during regular trading as concerns about rising costs intensified.
Profit Outlook Falls Short of Expectations
Amazon forecast first-quarter operating income between $16.5 billion and $21.5 billion, which included about $1 billion in costs related to its satellite internet business, Amazon Leo. Analysts had estimated a profit of $22.04 billion, according to LSEG — a figure Amazon did not meet.
“The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates,” said Dave Wagner, portfolio manager at Aptus Capital Advisors.
Analyst Views: “Necessary” But Risky Spending
While Google and Meta also issued strong capex forecasts, their shares dipped only modestly. Microsoft’s stock, however, was punished after its cloud growth only barely beat expectations.
Amazon’s projected AI spending for 2026 is expected to exceed its operating cash flow, a warning sign for some investors. “Amazon has to invest at these levels just to stay in the race,” said D.A. Davidson analyst Gil Luria.
AWS Remains the Profit Engine — But Capex Overshadows Growth
Although AWS accounts for only 15–20% of Amazon’s total revenue, it generates more than 60% of the company’s operating profit. AWS posted its strongest quarterly growth in 13 quarters, but that performance was overshadowed by the company’s rising capital expenditures.
During the earnings call, Jassy highlighted AWS’s rapid innovation, citing more than 1,000 new applications launched or soon to launch, along with AI-based tools for customer service and sports alerts. “We are being incredibly scrappy,” he said.
Amazon’s Other Bets: E-Commerce, Physical Retail, and Advertising
Amazon is also investing heavily in its core e-commerce operations, expanding rural delivery coverage, accelerating same-day shipping, and increasing its focus on perishables. Yet the company took $610 million in asset impairments related to its physical stores unit, including Amazon Go and Amazon Fresh. The company is closing all Fresh and Go locations and converting some into Whole Foods outlets.
Instead, Amazon is betting on expanding Whole Foods, including plans for a 225,000-square-foot mega-store designed to compete with Walmart and Costco.
Meanwhile, Amazon’s advertising business continues to be a bright spot. Fourth-quarter ad sales rose 22% to $21.3 billion, and Jassy noted that AI tools are being integrated into Prime Video to help marketers create ads with less human input.
Workforce Moves Reflect AI Shift — Yet Hiring Continues
Amazon laid off 14,000 corporate employees during the quarter and previously cut 16,000 earlier in the year. The company said these reductions were driven by AI efficiencies and a desire to reshape corporate culture. Despite the layoffs, Amazon ended the year with 21,000 more employees than at the same time in 2024.