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.
Will AWS' Growing Capital Spending Boost or Burden Amazon Stock?
Read MoreHide Full Article
Key Takeaways
Amazon plans over $75B in 2024 capital spending, mostly for AWS AI and data center expansion.
AWS posted $27.5B in Q3 revenues, up 19% year over year, with operating margin climbing to 38%.
Management expects Q4 sales of $181.5-$188.5B and operating income between $16B and $20B.
Amazon's (AMZN - Free Report) aggressive capital expenditure plans for its Amazon Web Services (“AWS”) division signal confidence in the cloud computing market's growth trajectory, positioning the stock as a compelling investment opportunity despite near-term margin pressures.
The company reported third-quarter operating income of $17.4 billion, demonstrating robust profitability even as it scales infrastructure investments. AWS generated $27.5 billion in revenues during the quarter, representing 19% year-over-year growth, with the segment's operating margin expanding to an impressive 38%. This performance underscores the division's ability to maintain pricing power while capturing incremental market share in enterprise cloud services.
Management guided fourth-quarter revenues between $181.5 billion and $188.5 billion, reflecting anticipated momentum across all business segments. The company expects operating income to be in the range of $16 billion to $20 billion, indicating sustained profitability despite elevated capital outlays. Amazon projected capital expenditures exceeding $75 billion for 2024, with the majority allocated to AWS infrastructure supporting artificial intelligence workloads and expanded data center capacity.
In November 2025, AWS announced significant partnerships with leading AI companies and expanded availability of its generative AI services through Amazon Bedrock. The division introduced enhanced machine learning capabilities and launched new data center regions in strategic international markets, strengthening its competitive positioning against Microsoft Azure and Google Cloud Platform.
The increased capital spending directly addresses surging demand for AI computing resources, where AWS maintains technical advantages through its custom silicon offerings, including Trainium and Inferentia chips. These proprietary processors deliver superior price-performance ratios for customers training and deploying large language models, creating differentiation that justifies premium pricing.
While heightened capital intensity temporarily compresses free cash flow generation, the investments establish durable competitive moats in high-growth cloud infrastructure markets. AWS' expanding revenue base and margin profile suggest the capital deployment will generate substantial returns, making elevated spending a strategic asset rather than a fundamental burden for Amazon's valuation trajectory.
Cloud Rivals Escalate Infrastructure Investments
Microsoft (MSFT - Free Report) announced capital expenditures approaching $80 billion for fiscal 2025, primarily funding Azure infrastructure expansion and AI capabilities. Microsoft Azure reported 33% revenue growth in the recent quarter, reflecting strong enterprise adoption. Alphabet (GOOGL - Free Report) -owned Google disclosed plans for approximately $75 billion in capital spending for 2024, with Google Cloud achieving $11.4 billion in quarterly revenues and 35% growth. Microsoft maintains the second-largest cloud market share at approximately 20%, while Google holds roughly 11% of the global cloud infrastructure market. Both Microsoft and Google are prioritizing AI-focused data center buildouts, with Google emphasizing its TPU processors and Microsoft leveraging partnerships with OpenAI to differentiate their respective cloud platforms amid intensifying competition.
Amazon shares have returned 13.5% in the year-to-date period compared with the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 16.5% and 8.8%, respectively.
AMZN’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AMZN stock appears overvalued, trading at a forward 12-month price/earnings ratio of 32.9X, higher than the industry’s 25.68X. 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 $7.15 per share, which has seen an upward revision of 4.5% over the past 30 days. This indicates a 29.29% increase from the figure reported in the year-ago quarter.
Image: Bigstock
Will AWS' Growing Capital Spending Boost or Burden Amazon Stock?
Key Takeaways
Amazon's (AMZN - Free Report) aggressive capital expenditure plans for its Amazon Web Services (“AWS”) division signal confidence in the cloud computing market's growth trajectory, positioning the stock as a compelling investment opportunity despite near-term margin pressures.
The company reported third-quarter operating income of $17.4 billion, demonstrating robust profitability even as it scales infrastructure investments. AWS generated $27.5 billion in revenues during the quarter, representing 19% year-over-year growth, with the segment's operating margin expanding to an impressive 38%. This performance underscores the division's ability to maintain pricing power while capturing incremental market share in enterprise cloud services.
Management guided fourth-quarter revenues between $181.5 billion and $188.5 billion, reflecting anticipated momentum across all business segments. The company expects operating income to be in the range of $16 billion to $20 billion, indicating sustained profitability despite elevated capital outlays. Amazon projected capital expenditures exceeding $75 billion for 2024, with the majority allocated to AWS infrastructure supporting artificial intelligence workloads and expanded data center capacity.
In November 2025, AWS announced significant partnerships with leading AI companies and expanded availability of its generative AI services through Amazon Bedrock. The division introduced enhanced machine learning capabilities and launched new data center regions in strategic international markets, strengthening its competitive positioning against Microsoft Azure and Google Cloud Platform.
The increased capital spending directly addresses surging demand for AI computing resources, where AWS maintains technical advantages through its custom silicon offerings, including Trainium and Inferentia chips. These proprietary processors deliver superior price-performance ratios for customers training and deploying large language models, creating differentiation that justifies premium pricing.
While heightened capital intensity temporarily compresses free cash flow generation, the investments establish durable competitive moats in high-growth cloud infrastructure markets. AWS' expanding revenue base and margin profile suggest the capital deployment will generate substantial returns, making elevated spending a strategic asset rather than a fundamental burden for Amazon's valuation trajectory.
Cloud Rivals Escalate Infrastructure Investments
Microsoft (MSFT - Free Report) announced capital expenditures approaching $80 billion for fiscal 2025, primarily funding Azure infrastructure expansion and AI capabilities. Microsoft Azure reported 33% revenue growth in the recent quarter, reflecting strong enterprise adoption. Alphabet (GOOGL - Free Report) -owned Google disclosed plans for approximately $75 billion in capital spending for 2024, with Google Cloud achieving $11.4 billion in quarterly revenues and 35% growth. Microsoft maintains the second-largest cloud market share at approximately 20%, while Google holds roughly 11% of the global cloud infrastructure market. Both Microsoft and Google are prioritizing AI-focused data center buildouts, with Google emphasizing its TPU processors and Microsoft leveraging partnerships with OpenAI to differentiate their respective cloud platforms amid intensifying competition.
AMZN’s Share Price Performance, Valuation & Estimates
Amazon shares have returned 13.5% in the year-to-date period compared with the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 16.5% and 8.8%, respectively.
AMZN’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AMZN stock appears overvalued, trading at a forward 12-month price/earnings ratio of 32.9X, higher than the industry’s 25.68X. 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 $7.15 per share, which has seen an upward revision of 4.5% over the past 30 days. This indicates a 29.29% increase from the figure reported in the year-ago quarter.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
Amazon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.