Amazon just told investors it's going to spend $200 billion on AI infrastructure over the next few years. The market's response? A 10% haircut on the stock price.
Here's what actually happened: Amazon reported decent Q4 earnings—revenue up 13.6% year-over-year to $213.4 billion, slightly beating estimates. AWS (their cloud business) grew 23.6%, and advertising revenue jumped 23.1%. By most measures, this was a solid quarter.
But then CEO Andy Jassy announced plans to spend roughly $200 billion on capital expenditures, primarily for AI data centers and infrastructure. That's up from $128 billion in the trailing twelve months—a 56% increase in spending.
Wall Street freaked out. And honestly, they're not entirely wrong to be concerned.
Here's the issue: Amazon is asking shareholders to take a massive bet that AI infrastructure will pay off. They're not showing you the revenue yet—they're showing you the bill. Free cash flow dropped 70.7% year-over-year to just $11.2 billion. For a company Amazon's size, that's a warning sign.
This reminds me of the dot-com bubble, when companies burned cash building infrastructure for "the future of the internet." Some of those bets paid off spectacularly. Most didn't. The difference? We don't know yet which category Amazon falls into.
If you own Amazon stock, here's what you need to ask yourself: Do you believe AI will generate enough revenue in the next 3-5 years to justify spending $200 billion? Because that's the bet you're making.
The bull case: Amazon has a track record of massive infrastructure bets paying off (see: AWS). They're building the picks and shovels for the AI gold rush.
The bear case: Everyone is spending like crazy on AI (Google, Microsoft, Meta), which means someone is going to end up with stranded assets and overcapacity. History says not everyone wins this game.
My take: If Amazon were a smaller company, this would be reckless. But they've got the balance sheet and cash flow to absorb a wrong bet. That doesn't mean the stock can't fall further—it absolutely can. But this isn't a Pets.com situation. It's more like watching a heavyweight boxer go all-in on a risky strategy. They might get knocked down, but they're not getting knocked out.
