Amazon shares sunk more than 9% on Friday after the company’s hefty spending forecast surprised investors who were already wary that the artificial intelligence boom is at risk of becoming a bubble.
The e-commerce company on Thursday was the latest tech giant to announce plans for a massive increase in capital expenditures, after Google parent Alphabet, Microsoft and Meta all signaled they expect their spending sprees to continue.
Amazon, Alphabet, Microsoft and Meta reported about $120 billion in capital expenditures in the fourth quarter alone. That figure could exceed more than $660 billion this year, the Financial Times reported, which is higher than the gross domestic product of countries like the United Arab Emirates, Singapore and Israel.
Wall Street has responded differently to the companies’ spending plans, cheering Meta and Alphabet’s forecasts, while punishing Amazon and Microsoft.
Amazon, Microsoft, Nvidia, Meta, Google and Oracle collectively shed more than $1 trillion from their valuations over the past week, according to FactSet data.
Shares of companies developing hardware for the AI build-out will likely face continued volatility as “sentiment contagion takes hold,” Paul Markham, investment director at GAM Investments, told CNBC.
“Questions over the extent of capex as a result of LLM build-outs, the eventual return on that, and the fear of eventual over-expansion of capacity will be persistent,” he added.
‘Investors questioning every angle in AI race’
Amazon announced in its fourth-quarter earnings report that its capital expenditures are expected to reach $200 billion in 2026, which was more than $50 billion above analysts’ expectations.
While management is confident of long-term returns on investment, the lack of visibility is not sitting well with investors, Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, said Friday morning.
“We have suddenly gone from the fear that you cannot be last, to investors questioning every single angle in this AI race.”
Analysts at D.A. Davidson downgraded Amazon’s stock on Friday to neutral from a buy rating over concerns around its spending plans, risks to its cloud dominance and the potential for AI to erode its retail business.
“With the context of results from Microsoft and Google, we see AWS continuing to lose its lead and now scrambling to catch up through escalating investment,” the analysts wrote in a research note. “We are also increasingly concerned about Amazon retail’s transition to a new chat-driven internet dominated by Gemini and ChatGPT.”
Apple, on the other hand, which has faced pressure from Wall Street over its AI strategy and has previously committed far less on capex than other Big Tech firms, has seen its stock jump 7% since Monday on the back of what CEO Tim Cook described as “staggering” demand for the iPhone.
“The bet is becoming binary,” Michael Field, chief equity strategist at Morningstar, told CNBC, referring to the huge investments in so-called Magnificent Seven companies. “Either a big pay off if these investments come good, or a huge waste of shareholder’s cash if it goes wrong.”
— CNBC’s Annie Palmer and Elsa Ohlen also contributed to this report.
