We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Amazon Bets on AI Spending: Will Capex Drive Growth or Prove Risky?
Read MoreHide Full Article
Key Takeaways
Amazon spent $31.4B in Q2, with AI infrastructure driving capex toward $100B for 2025.
AWS revenues rose 17.5% y/y, with 18% growth projected for 2025 and 2026.
Heavy spending cuts AWS's margin outlook to 35% in 2025 from 39.5% a year earlier.
Amazon (AMZN - Free Report) is betting big on artificial intelligence, with the capital expenditure soaring to $31.4 billion in the second quarter of 2025, largely directed toward AI infrastructure and cloud technologies. Management noted this level of spending is likely to persist through the year, implying more than $100 billion in annual capital expenditure.
The strategy is clear: build the scale needed for AWS to power larger language models and advanced AI services, while securing higher-value enterprise contracts.
The buildout of AI-driven data centers and custom silicon like Trainium positions AWS for durable leadership. These efforts are already showing results; AWS revenues increased 17.5% year over year, with Zacks models projecting nearly 18% growth for both 2025 and 2026.
Expanded AI capacity can unlock higher-margin generative AI services, win new enterprise contracts and deepen customer stickiness. Beyond the cloud, investments in robotics, same-day delivery facilities and automation are designed to lower costs, speed fulfillment and support retail growth over the long term.
Still, the risks are significant. Such heavy capital outlays translate into rising depreciation expenses, pressuring AWS’s profitability. Management has guided AWS’s operating margin down to 35% in 2025 from 39.5%, acknowledging near-term margin fluctuations.
Amazon's bet relies on capturing a share of a fast-growing market. Per the UNCTAD report, the global AI industry is projected to reach $4.8 trillion by 2033, and the company's bold spending may ultimately prove to be worth the investment. Moreover, its third-quarter 2025 revenue estimate of $174-$179.5 billion underscores confidence in this high-level strategy.
Amazon’s AI Rivals Step Up With Massive Investments
Microsoft (MSFT - Free Report) is spending aggressively on AI, with the fiscal 2025 capital expenditure surpassing $64 billion and more than $30 billion set for the first-quarter fiscal 2026 alone. Microsoft is expanding AI data centers, custom chip clusters and training capacity, while integrating OpenAI and Anthropic models. With Azure and productivity tools like Office, Teams and Windows infused with AI, Microsoft now leads AWS in GenAI projects, offering stronger enterprise traction and steadier growth than Amazon.
Alphabet Inc. (GOOGL - Free Report) is also ramping up AI investment. It raised the 2025 capital expenditure guidance to $85 billion from the $75 billion mentioned earlier, with $22.5 billion spent in the second quarter alone. Alphabet is expanding data centers, accelerating server deliveries, and committing $9 billion to boost AI and cloud infrastructure in Oklahoma. Alphabet expects even higher capital expenditure in 2026, driven by soaring AI demand and cloud growth opportunities.
Amazon shares have returned 4.7% in the year-to-date period, underperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 12.4% and 9%, respectively.
AMZN’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, the AMZN stock appears overvalued, trading at a forward 12-month price/sales ratio of 3.24X, higher than the industry’s 2.26X. Amazon has a Value Score of D.
AMZN’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AMZN’s 2025 earnings is pegged at $6.73 per share, which has seen an upward revision of 3 cents over the past 30 days. This indicates a 21.7% increase from the figure reported in the year-ago quarter.
Image: Bigstock
Amazon Bets on AI Spending: Will Capex Drive Growth or Prove Risky?
Key Takeaways
Amazon (AMZN - Free Report) is betting big on artificial intelligence, with the capital expenditure soaring to $31.4 billion in the second quarter of 2025, largely directed toward AI infrastructure and cloud technologies. Management noted this level of spending is likely to persist through the year, implying more than $100 billion in annual capital expenditure.
The strategy is clear: build the scale needed for AWS to power larger language models and advanced AI services, while securing higher-value enterprise contracts.
The buildout of AI-driven data centers and custom silicon like Trainium positions AWS for durable leadership. These efforts are already showing results; AWS revenues increased 17.5% year over year, with Zacks models projecting nearly 18% growth for both 2025 and 2026.
Expanded AI capacity can unlock higher-margin generative AI services, win new enterprise contracts and deepen customer stickiness. Beyond the cloud, investments in robotics, same-day delivery facilities and automation are designed to lower costs, speed fulfillment and support retail growth over the long term.
Still, the risks are significant. Such heavy capital outlays translate into rising depreciation expenses, pressuring AWS’s profitability. Management has guided AWS’s operating margin down to 35% in 2025 from 39.5%, acknowledging near-term margin fluctuations.
Amazon's bet relies on capturing a share of a fast-growing market. Per the UNCTAD report, the global AI industry is projected to reach $4.8 trillion by 2033, and the company's bold spending may ultimately prove to be worth the investment. Moreover, its third-quarter 2025 revenue estimate of $174-$179.5 billion underscores confidence in this high-level strategy.
Amazon’s AI Rivals Step Up With Massive Investments
Microsoft (MSFT - Free Report) is spending aggressively on AI, with the fiscal 2025 capital expenditure surpassing $64 billion and more than $30 billion set for the first-quarter fiscal 2026 alone. Microsoft is expanding AI data centers, custom chip clusters and training capacity, while integrating OpenAI and Anthropic models. With Azure and productivity tools like Office, Teams and Windows infused with AI, Microsoft now leads AWS in GenAI projects, offering stronger enterprise traction and steadier growth than Amazon.
Alphabet Inc. (GOOGL - Free Report) is also ramping up AI investment. It raised the 2025 capital expenditure guidance to $85 billion from the $75 billion mentioned earlier, with $22.5 billion spent in the second quarter alone. Alphabet is expanding data centers, accelerating server deliveries, and committing $9 billion to boost AI and cloud infrastructure in Oklahoma. Alphabet expects even higher capital expenditure in 2026, driven by soaring AI demand and cloud growth opportunities.
AMZN’s Share Price Performance, Valuation & Estimates
Amazon shares have returned 4.7% in the year-to-date period, underperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 12.4% and 9%, respectively.
AMZN’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, the AMZN stock appears overvalued, trading at a forward 12-month price/sales ratio of 3.24X, higher than the industry’s 2.26X. Amazon has a Value Score of D.
AMZN’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AMZN’s 2025 earnings is pegged at $6.73 per share, which has seen an upward revision of 3 cents over the past 30 days. This indicates a 21.7% increase from the figure reported in the year-ago quarter.
Image Source: Zacks Investment Research
Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.