Will Heavy Capex Spending Weigh on Amazon's AI Ambitions?

Amazon's AMZN fourth-quarter 2025 earnings delivered a record $213.4 billion in revenues, up 14% year over year, with Amazon Web Services posting $35.6 billion in quarterly revenues, representing a 24% increase that marked the unit's fastest growth in 13 quarters. 

Yet the headline numbers were quickly overshadowed by a single disclosure: the company plans to deploy approximately $200 billion in capital expenditures in 2026, representing a roughly 52% jump from the $131.8 billion spent in full-year 2025 and more than double the $83 billion invested in 2024.

The scale of that commitment has intensified scrutiny over whether heavy infrastructure spending will ultimately serve or strain Amazon's AI ambitions. Full-year 2025 trailing 12-month free cash flow was $11.2 billion, down from $38.2 billion in 2024, falling sharply as capex consumed the majority of operating cash flow in 2025. With the 2026 plan set to accelerate that trajectory further, the gap between investment outlay and visible financial returns becomes a central concern for the year ahead.

Management has framed the spending as demand-driven, pointing to AWS' growing backlog, which stands at $244 billion, up 40% year over year and 22% sequentially, and noting that newly installed AI capacity is being absorbed almost as quickly as it becomes available. The bulk of the 2026 outlay is earmarked for AWS, covering data center expansion, networking infrastructure, and the continued scaling of proprietary silicon. Amazon's Trainium and Graviton chip families are now running at a combined annualized revenue rate exceeding $10 billion, with Trainium3 already launched and supply commitments expected to fill through mid-2026.

The first-quarter 2026 operating income guidance of $16.5 billion to $21.5 billion signals that near-term margins will absorb meaningful pressure from both rising depreciation and additional satellite infrastructure investments. The critical test for 2026 is whether AWS revenue growth, currently re-accelerating on an annualized basis of roughly $142 billion, can keep pace with a capital deployment cycle of unprecedented scope.

How Alibaba and Alphabet Compare on AI Capex

Amazon's capex ambitions find parallel, albeit at different scales, in Alibaba BABA and Alphabet GOOGL. Alibaba has committed a minimum of RMB 380 billion (approximately $53 billion) over three years for AI and cloud infrastructure, with roughly RMB 120 billion already deployed — a measured pace relative to its Western peers. Alphabet, the parent of Google, has taken a more aggressive stance, guiding 2026 capex to $175-$185 billion, nearly double its $91.4 billion spent in 2025. Google's cloud revenues surged 48% year over year in fourth-quarter 2025, providing Alphabet with stronger near-term revenue cover for its spending. Alibaba, by contrast, is building at a slower cadence, balancing AI investment against profitability priorities.

AMZN’s Share Price Performance, Valuation & Estimates

Amazon shares have lost 10.2% in the past six-month period compared with the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s decline of 11.5% and 1.7%, respectively.

AMZN’s 6-Month Price Performance

From a valuation standpoint, AMZN stock appears overvalued, trading at a forward 12-month price/earnings ratio of 25.93X, higher than the industry’s 21.75X. Amazon has a Value Score of C.

AMZN’s Valuation

The Zacks Consensus Estimate for AMZN’s 2026 earnings is pegged at $7.78 per share, indicating an 8.51% 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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