Amazon Shares fell more than 9% on Friday after the company’s huge spending outlook surprised investors who were already wary that the artificial intelligence boom risked becoming a bubble.
The e-commerce company was the latest tech giant on Thursday to announce plans for a major increase in capital spending, following Google’s parent company. alphabet, microsoft and Meta All indicated they expected the waste to continue.
Amazon, Alphabet, Microsoft, and Meta reported approximately $120 billion in capital spending in the fourth quarter alone. The figure could exceed $660 billion this year, the Financial Times reports, more than the gross domestic products of countries such as the United Arab Emirates, Singapore and Israel.
Wall Street reacted differently to the companies’ spending plans, supporting Meta and Alphabet’s forecasts while punishing Amazon and Microsoft.
Amazon, Microsoft, Nvidia,meta,google, oracle In total, they have shed more than $1 trillion in valuation over the past week, according to FactSet data.
Paul Markham, investment director at GAM Investments, told CNBC that stocks of companies developing hardware for building AI are likely to continue to face volatility as “emotional contagion takes hold.”
He added, “Concerns about the scale of capital investment, ultimate profits, and eventual overexpansion of production capacity due to LLM expansion will persist.”
Amazon stock price over the past month
“Investors are questioning the AI race from all angles.”
Amazon announced in its fourth quarter earnings report that it expects capital spending to reach $200 billion in 2026, more than $50 billion more than analysts expected.
Mamta Valecha, consumer discretionary analyst at Quilter Cheviot, said Friday morning that while management is confident in long-term investment returns, the lack of visibility is making investors uncomfortable.
“We went from fearing we might not be the last one standing to suddenly having investors questioning every angle in this AI race.”
Analysts at DA Davidson on Friday downgraded Amazon stock from a buy rating to neutral, citing concerns over spending plans, risks to cloud dominance and the potential for AI to erode its retail business.
“Given the results from Microsoft and Google, AWS continues to lose its lead and is now struggling to catch up with increased investment,” analysts said in a research note. “We are also increasingly concerned about Amazon Retail’s move to a new chat-driven Internet dominated by Gemini and ChatGPT.”
appleMeanwhile, the company, which faces pressure from Wall Street over its AI strategy and has so far made far less capital spending than other big tech companies, has seen its shares rise 7% since Monday on what CEO Tim Cook described as “tremendous” iPhone demand.
“The bet is becoming dichotomous,” Michael Field, chief equity strategist at Morningstar, told CNBC, referring to the huge investments in the so-called Magnificent Seven companies. “If these investments work out, they can yield significant returns, but if they don’t work out, they represent a huge waste of shareholder cash.”
— CNBC’s Annie Palmer and Elsa Oren also contributed to this report.
