Anyone who keeps regular tabs open Amazon (NASDAQ: AMZN) you probably already know that the stock was raised in early February, partly because of its fourth-quarter earnings, but also because of its big spending plans this year.
The e-commerce and cloud computing giant plans to spend $200 billion by 2026, with a large portion of that money expected to be invested in artificial intelligence (AI) technology and related solutions. Stunned, investors panicked. Amazon shares are still down 15% from their pre-announcement price.
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As the news dust begins to settle however, investors are now able to conduct high-level research on the program. Clearly, Amazon has done well enough in this regard to justify such a large investment in it now. Could it be that the company is making the right — or expensive — move now?
Here’s something to think about.
Amazon was the first to build a large cloud computing business, launching Amazon Web Services (AWS) in 2006 before most people knew what cloud computing was. Although it has since lost share on Google as well Microsoft (and others), AWS is still the largest service provider in the world, collecting 28% of the planet’s cloud computing revenue in the last quarter of last year, according to Synergy Research Group.
Amazon Web Services is also Amazon’s biggest profit center though not its largest business, contributing 57% of operating income last year compared to just 18% of revenue. Indeed, AWS’s 2025 operating revenue of $45.6 billion has increased nearly 15% year-over-year, resulting in company-wide growth due to the artificial intelligence capabilities it can offer its customers.
Given this, it makes sense to invest heavily in Amazon’s top performer at this time, especially given industry research firm Technavio’s forecast that the global AI infrastructure market is poised to grow at an annual rate of nearly 25% until 2030.
As the old saying goes, the devil is in the details. There are subtleties here that could turn this $200 billion bet into a huge, devastating mistake.
There is nothing unusual about Amazon’s plans to invest in its growth. In fact, many AI tech outfits are budgeting large sums of money for artificial intelligence investments this year, taking advantage of the opportunity that is clearly still in play.
Making these plans into stock, however, can be difficult. Even if they don’t realize they are doing it, investors see and consider the bigger picture. They can feel if the plan makes sense or not.
And that may be what’s been holding Amazon shares down since the company revealed its 2026 capital spending budget and its fourth-quarter numbers earlier last month.
Amazon Web Services revenue and operating income growth has been healthy. But, with capex expected to increase from $131 billion last year to $200 billion this year (compared to analysts’ expectations for a significantly lower $146.6 billion), it’s thought that AWS’s operating income may stagnate, if not decline entirely from last year’s $45.6 billion. It’s a problem because most investors aren’t interested in seeing a company just buy dollar-for-dollar revenue growth.
Then there’s the indirect but arguably more dangerous side of investing so much money in an expansion plan in or out of the field of artificial intelligence. That is, the company may not have free throws.
Don’t misunderstand. Amazon remains one of the largest companies in the world, with a current market cap of just over $2 trillion, and is coming off a year in which it reported $717 billion in revenue. Only about $77 billion of that was converted into net income, however, which is roughly the amount of the projected increase in the company’s expense budget.
Or in another eye-opening comparison, last year’s cash flow was just $139.5 billion, down from 2024’s figure of just under $116 billion.
The point is, Amazon will need to generate a quick and measurable return on these investments — none of which are guaranteed in the current economic climate — if it does not want to risk not being able to respond to other problems or opportunities such as expanding its transportation network now that its partnership with the United States Postal Service is about to unfold. CEO Andy Jassy said on the fourth quarter call, “We’re making money as fast as we can,” but as such, there’s no room for any windfall or misalignment.
Amazon is not doomed just because it plans to invest heavily in something that may or may not provide the kind of returns it has in the past.
On the other hand, its stock has long been valued at a high price based on strong, lucrative growth that it has been able to achieve with relatively modest investments. If these historical rates of return are no longer met (even just because of their absolute magnitude), investors may feel they have no choice but to return the amount of premium they are willing to pay here. That ultimately works against the stock price.
Just another food for thought.
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James Brumley has positions in Alphabet. The Motley Fool has positions and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a policy of disclosure.
Here’s Why Amazon’s Biggest Bet in 2026 Could Backfire on Shareholders was originally published by The Motley Fool
