Company reports its cloud-computing growth has been slower than rivals Quick Summary
Amazon’s shares dropped around 10% after the company announced a nearly 60% increase in 2026 AI-related capital spending to $200 billion.
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Amazon.com AMZN -4.42%decrease; red down pointing triangle shares fell sharply after the technology giant unveiled plans for a massive increase in AI-related spending and fourth-quarter growth in its cloud-computing unit that was slower than rivals.
The company said it expects $200 billion in 2026 capital spending, a nearly 60% increase from last year and far above Wall Street expectations.Amazon shares were about 8% lower in premarket trading.
The results underscore investor angst about spending increases for artificial intelligence. Microsoft, Meta Platforms, Alphabet’s Google, Amazon and Oracle, which are all scrambling to build and finance data centers because of a massive increase in AI-related computing demands, collectively plan to spend more than $700 billion in 2026, according to the companies and analyst projections. That is close to the 2026 spending budget for Japan and exceeds those of Germany and Mexico.
Shareholders have responded unevenly to spending increases, rewarding Meta and Google due to positive improvements in advertising and other businesses while punishing Microsoft and Amazon for not growing their AI-related businesses quickly enough.
With spending on data centers outpacing growth in revenue, investors are concerned that tech companies are spending too quickly. Amazon says it is selling data-center capacity as quickly as it can bring it online. The company says it believes the demand is long-term.We have confidence that these investments will yield strong returns,” said Amazon Chief Executive Andy Jassy.
The Amazon results capped a stunning week for technology companies that outlined the contours of an increasingly chaotic AI arms race that will continue to reverberate through markets in unexpected ways. Software companies as wide-ranging as Salesforce and Workday faced an intense selloff after startup Anthropic released new AI tools that appear poised to compete with a range of existing information-technology products and services.
Amazon’s net profit for the period was $21.2 billion, in line with analyst expectations, and the company said it expects first quarter operating profit of between $16.5 billion and $21.5 billion. Its guidance includes $1 billion in higher costs related to its Leo satellite unit. The company has also sought to cut costs, laying off another 16,000 staffers and closing underperforming businesses.
Revenue from Amazon Web Services rose 24% to $35.6 billion compared with a year earlier. Microsoft said last week that its Azure cloud business grew 39% in the fourth quarter, but the company warned growth was hampered by the limited supply of hardware needed for AI. Google parent Alphabet said Wednesday that its cloud business brought in nearly $18 billion in revenue, a 48% increase from the previous year.Amazon has said that its business is growing at its fastest rate in years and that its data-center business is larger than rivals. The company has said comparing growth rates alone isn’t an indicator of Amazon’s standing in the industry.
The billions of dollars being spent on data centers by tech companies has led to increased investor scrutiny on companies like Amazon that sell space in data centers to AI businesses. Any slowdown in cloud-computing growth would fuel concern that the AI boom could become a bubble.
Amazon is in talks to invest up to $50 billion in OpenAI, according to people familiar with the matter.
In December, Amazon shook up its artificial-intelligence unit as it seeks to accelerate its development of AI services. Rohit Prasad, who had led the company’s AI efforts, was succeeded by Peter DeSantis, a nearly 30-year veteran of Amazon who launched some of the company’s most important cloud-computing services. Amazon now hopes DeSantis will deliver AI services and custom chips to customers more quickly.
To counterbalance the hefty AI spending, Amazon has cut back in other areas, most notably among its white-collar workforce. The company announced another round of layoffs in January, bringing the total number of job cuts to around 30,000 since October, or roughly 10% of its corporate workforce.
Amazon recently said it was shutting down its Fresh and Go grocery stores, after failing to win over enough customers. Instead, the company said it would focus on expanding its network of Whole Foods Market stores and building more warehouses to offer same-day grocery delivery.
The company also said it was cutting back on its Amazon One service that allowed people to pay with their palm print. The system will no longer be available at retail stores as of June 6, although the service will continue to be used at clinics.
“The latest round of layoffs, the Amazon Fresh and Go store closures, and the sunsetting of the Amazon One palm payment system allow the company to reallocate resources toward its most profitable business opportunities,” said Sky Canaves, a retail and e-commerce analyst at Emarketer.
Amazon’s core e-commerce business continued to expand despite increased competition and concerns about consumer spending power. In January, consumer confidence fell to its lowest level in over a decade, according to a monthly survey conducted by research group The Confidence Board.
Jassy has said that people continue to shop for everyday essentials and that the company’s expanded same-day grocery-delivery service is proving to be popular with customers.
“Consumers have been pretty resilient. They continue to spend,” Jassy said in an interview with CNBC at the World Economic Forum in Davos. “I see people a little bit more hesitant on the higher priced discretionary items.”
Revenue from Amazon’s online stores business rose to $82.9 billion in the last three months of the year, compared with $75.6 billion a year prior.
