The shares of Amazon, Inc dropped 12% this week, according to the reports of S&P Global Market Intelligence. The primary reason for the Amazon stock to tumble is the investors ‘sticker shock, as the shares slid after the company reported its Q4 earnings, not because the results were weak, but investors were extremely puzzled and concerned about the scale and timing of what comes next.
Amazon Stock Falls Despite the Revenue Beat
During the Q4 earnings release of Amazon, the CEO Andy Jassy, said that the company expects a capital expenditure of $200 billion for 2026, citing the strong demand for AI, custom chips, robotics, and low-Earth-orbit satellites. The revenue topped expectations at about $211.4 billion, beating the Amazon Web Services (AWS) forecasts. The advertising revenue grew 23%, and earnings per share (EPS) came in at $1.95. AWS posted its fastest growth in 13 quarters, reinforcing the idea that the most profitable engine of Amazon is re-accelerating. However, although the revenue jumped to $213 billion and the operating income leaped 18% to $25 billion, Wall Street is spooked by the staggering $200 billion, $50 billion more than expected.
Amazon is certainly enjoying the booming demand for its artificial intelligence services, custom-designed semiconductor chips used by its cloud computing customers, warehouse tools, and its forthcoming space-based internet offerings. But the extra $50 billion capex was a bit more for many investors to be optimistic about, hence, they decided to back off and sell their shares. The $200 billion capex will exert pressure on near-term profitability and margins, despite the strong growth in AWS, advertising, and retail. This market reaction reflects a broader shift in the earnings season. Big Tech is no longer being judged solely based on growth. Investors are scrutinizing whether the massive AI and infrastructure investments translate into profits. With hyperscalers expecting to spend more than $500 billion on AI infrastructure this year, investors are running out of patience for tangible returns.
Amazon’s Long-Term AI Bet Echoes Early AWS Strategy
Despite the warnings from some financial and technological analysts that AI is at risk of becoming a bubble that could burst, apart from Amazon, this week, Big Tech’s major players like Meta, Alphabet (Google Cloud), and Microsoft (Azure) also collectively announced they are likely to plough $650 billion this year into AI and related projects. This was followed by the likes of Meta and Microsoft lowering their prices, dragging down the wider market. The boss of US tech giant Cisco told the BBC that the transition to AI will likely create winners, but also warned that there will be “carnage along the way.”
Though analysts from Oppenheimer, HSBC, Wedbush, JP Morgan, Citi, Morgan Stanley, and Bank of America maintained bullish ratings, they trimmed the price targets, reflecting the caution over the short-term financial impact. JP Morgan analysts said that they expect Amazon executives to willingly take near-profit pain to drive significant long-term growth opportunities, just like they did when first building its cloud business, AWS. Moreover, though Amazon is trading at its lowest valuation ever, social media comments and posts stating that Amazon is still a better investment are providing traction for investors amidst the fear.
