Amazon shares plunge 10% on $200B AI spending plan
Massive capex increase for cloud infrastructure spooks investors amid margin concerns
Amazon shares suffered their steepest single-day decline in more than a year on Thursday after the e-commerce and cloud giant unveiled plans to invest $200 billion in capital expenditures during 2026, an aggressive bet on artificial intelligence that sent investors fleeing over concerns about returns and profit margins.
The stock closed down 4.4% at $222.69, with after-hours trading extending losses to as much as 11.5% on doubled volume of 103.5 million shares. The plunge wiped roughly $250 billion from Amazon's market capitalization, which stood at $2.49 trillion before the announcement.
The massive spending plan—representing a roughly 60% increase from the $125 billion estimated for 2025—comes despite the company reporting better-than-expected fourth-quarter results. Net sales rose 14% to $213.4 billion, exceeding Wall Street expectations, while Amazon Web Services delivered 24% year-over-year growth to $35.6 billion, its fastest expansion in 13 quarters.
However, adjusted earnings per share of $1.95 fell short of analyst estimates by a penny, and first-quarter operating income guidance disappointed investors. The modest earnings miss, combined with the staggering capex projection, triggered a broad-based sell-off as investors questioned the timeline for returns on such a massive outlay.
"With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites, we expect to invest about $200 billion in capital expenditures across Amazon in 2026, and anticipate strong long-term return on invested capital," said Andy Jassy, Amazon's chief executive, in the earnings release.
The spending will be predominantly directed toward AWS infrastructure, where demand for AI computing capacity has surged. Amazon's cloud unit has been developing custom AI chips called Trainium and Inferentia to reduce reliance on Nvidia's graphics processors, a strategy analysts view as potentially improving margins long-term but requiring substantial upfront investment.
Yet the scale of Amazon's commitment—which exceeds the reinvestment rates of competitors like Microsoft and Google, who typically reinvest 40-60% of operating cash flow compared to Amazon's nearly 90%—raised immediate alarms on Wall Street. The company's free cash flow has already plummeted 71% to $11.2 billion, reflecting the financial toll of earlier infrastructure investments.
Analysts expressed particular concern that capital expenditure growth is outpacing AWS revenue expansion, potentially signaling diminishing returns or competitive pressure rather than pure customer demand. Raymond James projects 22-23% AWS growth for 2026, but some investors worry that even that trajectory may not justify the unprecedented spending levels.
"The projected capex growth outpaced the growth in AWS revenue, a factor that contributed to the negative market sentiment," analysts noted in coverage of the results. "There's also a lingering question about whether this intense spending is solely driven by customer demand or partly by competitive pressures, especially given similar large capex announcements from peers."
The sell-off highlights growing investor skepticism about the multitrillion-dollar AI arms race among big technology companies. While Microsoft, Google, and Meta have all announced significant AI investments, Amazon's $200 billion commitment represents one of the most ambitious single-year infrastructure buildouts in corporate history.
Despite the negative market reaction, Amazon's fundamentals remain robust. Net income increased to $21.2 billion from $20 billion a year earlier, while AWS operating income rose to $12.5 billion from $10.6 billion. The retail business continued its steady recovery, with online store sales reaching $83 billion, up 10% year-over-year and exceeding analyst expectations.
But for a market already grappling with questions about valuations and the pace of AI monetization, the combination of a earnings miss and dramatically higher capex guidance proved too much to bear. With 69 of 69 analysts maintaining buy or strong-buy ratings and an average target price of $296.11—representing 33% upside from current levels—the question now is whether Amazon can demonstrate that its $200 billion bet will deliver the returns Jassy has promised.
Investors will be watching closely for signs that AWS growth accelerates further and that Amazon's custom chip initiatives gain traction, both of which would be critical to justifying the historically high capital expenditure levels. Until then, the stock's sharp decline reflects a market demanding proof that the era of unlimited AI spending will generate proportional profits.