Amazon Plans Massive AI Spending Surge, Investors React as Shares Drop Sharply

Post by : Saif Nasser

Amazon has announced that it plans to sharply increase its capital spending this year, with most of the new money going into artificial intelligence and cloud infrastructure. The company expects to spend about $200 billion, which is more than 50 percent higher than last year’s level of around $131 billion. While Amazon says this investment is needed to stay competitive in the fast-growing AI race, investors reacted with concern, and the company’s shares fell heavily after the news.

The market response was quick and strong. Amazon stock dropped more than 11 percent in after-hours trading after the spending forecast was shared along with the company’s earnings report. During regular trading earlier in the day, the shares had already closed lower as worries spread about how much Big Tech companies are spending on AI and how long it will take to see real returns.

The planned spending jump shows that Amazon is not slowing down in the technology arms race. Like Microsoft, Google, and Meta, the company is building large data centers, buying advanced chips, and expanding servers to handle AI tools and cloud services. These systems are expensive but are seen as necessary to support the next wave of digital products.

Amazon CEO Andy Jassy defended the plan during a call with investors. He argued that Amazon Web Services, known as AWS, remains in a strong position and continues to grow at a solid pace. AWS is Amazon’s cloud computing business and is a major source of profit for the company. Jassy explained that growing at over 20 percent on a very large revenue base is harder — and more meaningful — than growing faster from a much smaller base, which is the case for some competitors.

In the most recent quarter, AWS revenue reached $35.6 billion, up 24 percent from a year earlier. That growth rate is the highest in more than three years. Even so, some rivals are growing faster in percentage terms. Google Cloud reported growth of 48 percent, and Microsoft Azure grew about 39 percent. Investors are watching these numbers closely as the cloud and AI battle intensifies.

Across the tech industry, total AI-related capital spending is expected to cross $630 billion this year among the four largest players — Amazon, Microsoft, Google, and Meta. Wall Street is sending a clear message that such heavy spending must lead to strong profits and better operations. If companies cannot show clear gains, investors may continue to punish their stocks.

One concern raised by analysts is that Amazon’s projected capital spending for the year could be higher than its operating cash flow. In simple terms, this means the company plans to spend more on new projects and infrastructure than the cash it generates from running its business. Some experts say this raises risk, even for a company as large as Amazon. Others argue that Amazon has no choice but to invest heavily if it wants to stay competitive in AI and cloud services.

Amazon also gave a profit outlook for the current quarter that came in below what analysts expected. The company forecast operating income between $16.5 billion and $21.5 billion, while market estimates were slightly higher. The forecast includes about $1 billion in added costs, partly linked to Amazon’s satellite internet project known as Leo. That project aims to compete in the space-based internet market but requires large upfront investment.

Despite investor worries, Amazon continues to expand across many business areas. Its advertising unit remains a bright spot, with sales rising 22 percent in the last quarter to over $21 billion. The company is also adding AI tools to advertising and video services so that marketers can create ads faster with less manual work.

Amazon’s retail business is also seeing changes. The company is pushing deeper into rural delivery, faster shipping options, and grocery services. At the same time, it is stepping back from some physical store formats. Amazon recorded more than $600 million in asset write-downs related mainly to its physical stores division, including Amazon Go and Amazon Fresh locations. Several of these stores are being closed or converted into Whole Foods outlets. The company is now testing a very large Whole Foods-style store designed to compete with big-box retailers.

Cost control is another part of the picture. Amazon reduced its corporate workforce through layoffs, cutting tens of thousands of office roles over recent periods. Management says AI tools and efficiency changes made some positions unnecessary and that the company wants a leaner culture. Even after these cuts, Amazon ended the year with more total employees than the year before, showing that hiring continues in other areas like logistics and technology.

The bigger question now is whether the AI spending wave will truly pay off. Investors are not rejecting AI itself, but they want proof that huge budgets will lead to real earnings growth. Markets are becoming more selective. Companies that show clear revenue and profit gains from AI are being rewarded, while those that spend heavily without clear short-term results are seeing their shares fall.

Amazon’s strategy is clear: invest big now to secure a stronger position later. The risk is also clear: if returns take too long, investor patience may run out. The coming quarters will be important in showing whether Amazon can turn record spending into record performance.