Amazon sees 50% boost to capital spending in 2026; shares tumble

NEW YORK – Amazon on Feb 5 projected a surge of more than 50 per cent in capital expenditures (capex) in 2026, joining its peers in a spending spree to build out artificial intelligence (AI) infrastructure and sending its shares down 11.5 per cent in after-hours trading.

As the shares sputtered on news that Amazon would be pumping US$200 billion (S$255 billion) into boosting its AI efforts in 2026, chief executive Andy Jassy struck a defensive tone during the company’s call with investors, in contrast to the more self-assured Alphabet executives on Feb 4, when Google showed resilience in developing AI software.

“As a reminder”, said Mr Jassy, referring to the results of cloud platform Amazon Web Services (AWS), “it’s very different having 24 per cent year-over-year growth on US$142 billion annualised run rate, than to have a higher-percentage growth on a meaningfully smaller base, which is the case with our competitors”.

AWS’ revenue grew to US$35.6 billion in the December quarter, while Google Cloud grew 48 per cent to US$17.75 billion. Microsoft’s Azure surged 39 per cent in the same period.

Amazon’s results are the latest sign that Big Tech will not be hitting the brakes any time soon on hefty AI investments. Amazon shares closed down 4.4 per cent during regular trading as worries deepened over the enormous cost of the AI boom.

The top four hyperscalers – Amazon, Microsoft, Google and Meta – are collectively expected spend more than US$630 billion in 2026.

Tech earnings over the past few days have shown Wall Street has a clear message for tech firms: soaring AI spending can continue only if companies show commensurate operational or financial returns.

Amazon also forecast first-quarter operating income of between US$16.5 billion and US$21.5 billion, including roughly US$1 billion related in part to higher costs at its high-speed satellite internet business, Leo. Analysts estimated a profit of US$22.04 billion, according to LSEG.

Mr Dave Wagner, portfolio manager at Aptus Capital Advisors, said: “The market just dislikes the substantial amount of money that keeps getting put into capex for these growth rates.”

Analysts largely hailed Google’s eye-popping capex forecast as the company delivered stellar growth in its cloud revenue – though its shares fell 3 per cent on Feb 5 – as they did on Meta’s capex plans. But investors punished Microsoft’s stock last week after its cloud unit growth just squeaked past estimates.

Amazon’s high projected spending in 2026 will be more than its operating cash flow, said Mr Asit Sharma, senior investment analyst at The Motley Fool.

Mr Gil Luria, a D.A. Davidson analyst, said: “Amazon has to invest at these levels just to stay in the race.”

Although a smaller unit for Amazon, contributing just 15 per cent to 20 per cent of overall sales, AWS generates more than 60 per cent of the company’s operating profit. Its fourth-quarter sales growth of 24 per cent was the biggest in 13 quarters, but that was overshadowed by the company’s capex surge.

Mr Jassy spent much of the nearly hour-long post-earnings call boasting about AWS’ new offerings. He noted, for instance, that AWS had more than 1,000 new applications it launched or plans to launch, as well as a competitive AI-based customer service bot and live sports alerts.

“We are being incredibly scrappy,” said Mr Jassy. “In every one of our businesses, you see a very broad use of AI to improve the customer experience, and, in many cases, just to completely reinvent what was possible before.”

Amazon has also been investing in its e-commerce business, seeking to draw more customers by expanding to rural areas in the US, boosting its same-day and next-day delivery capabilities and deepening its push into perishable foods.

But Amazon took US$610 million in asset impairments related primarily to its physical stores unit, which includes Amazon Go and Amazon Fresh grocery stores. The company is retreating from physical stores by closing all its Fresh and Go stores and converting some into Whole Foods locations.

Its latest bet is an expansion of Whole Foods’ footprint and a 225,000 sq ft megastore meant to compete with the likes of Walmart and Costco.

Amazon’s advertising business continues to be a highlight. Sales jumped 22 per cent in the fourth quarter to US$21.3 billion, and Mr Jassy said the company has added AI options to Prime Video so that marketers can create ads with limited human interaction.

The Seattle-based company laid off 14,000 corporate employees in the quarter and earlier in 2026 laid off another 16,000, which it said was necessary due to efficiencies gained from AI use and a desire to change corporate culture. Still, it finished the year with 21,000 more employees than the same period in 2024. REUTERS