Amazon shares sank sharply on Friday after investors recoiled at the scale of Big Tech’s accelerating AI spending, reigniting fears that the industry is pouring unprecedented sums into technology that may take years to pay off — if it pays off at all.
The stock dropped after Reuters reported that Amazon’s capital expenditure plans could climb toward $200 billion by 2026, landing at the heart of a growing market anxiety: that the race to dominate artificial intelligence is becoming a margin-crushing arms race rather than a near-term profit engine.
Investors are increasingly uneasy that more than $600 billion in AI-related spending this year across the tech sector could overwhelm earnings, drain free cash flow, and leave even the biggest players exposed if demand falls short of expectations.
Amazon’s selloff spilled into broader tech trading as markets digested the implications for rivals also ramping up investment, including Alphabet, Microsoft, and Meta.
Analysts warned that while rising capital intensity has long been expected, the sheer magnitude of the spending is now unsettling markets. Research firm MoffettNathanson said the scale of planned investment is “materially greater than consensus expected,” shrinking the margin for error if growth slows or pricing power weakens.
Concerns are also mounting that rapidly improving AI tools could undermine demand for traditional software, squeezing profit margins across cloud and enterprise businesses and triggering a broader valuation reset across the sector.
During Amazon’s post-earnings call, CEO Andy Jassy struck a notably defensive tone, emphasizing that growth at scale looks different when cloud revenue already exceeds $140 billion annually. But the reassurance did little to calm markets rattled by comparisons with faster-growing rivals.
Amazon Web Services reported quarterly revenue of $35.6 billion, while Google Cloud and Microsoft Azure posted much faster percentage growth — reinforcing investor fears that massive spending does not guarantee market dominance.
At least five brokerages cut their price targets on Amazon following the results, as valuation concerns resurfaced. The stock trades at a price-to-earnings ratio broadly in line with peers, leaving little room for disappointment if AI returns lag expectations.
With tech giants now collectively expected to spend more than $630 billion on AI this year, investors are confronting a darker question: whether the AI boom is approaching a moment where optimism gives way to balance-sheet reality.
