Amazon AI Investment and Cloud Growth Under Scrutiny as Capex Surges
Amazon.com Inc. (NASDAQ: AMZN) has enjoyed a strong rally, fueled by robust cloud performance and aggressive cost-cutting measures. However, both factors are now facing scrutiny as Wall Street assesses the future of Amazon Web Services (AWS) and the company’s ballooning capital expenditures.
Cloud Growth Concerns Amid Big Tech Slowdown
AWS, Amazon’s cloud-computing powerhouse, is a cornerstone of the company’s revenue and profitability. However, recent earnings reports from Microsoft Corp. (NASDAQ: MSFT) and Alphabet Inc. (NASDAQ: GOOGL) have signaled potential headwinds in the cloud sector. Alphabet’s weaker-than-expected cloud revenue and Microsoft’s mixed results have raised investor concerns about whether AWS can maintain its growth trajectory.
Analysts estimate that AWS sales will grow 19% this quarter on a constant currency basis, but any sign of weakness in Amazon’s earnings report could send shares lower. Investors are closely watching whether AI-driven cloud adoption can offset broader industry slowdowns.
AI Spending: The 800-Pound Gorilla in the Room
The artificial intelligence (AI) revolution has sparked a wave of capital expenditures across Big Tech, and Amazon is no exception. Wall Street expects Amazon’s capex to reach approximately $76 billion in 2024, up from $53 billion the previous year. Projections suggest spending could rise to $86 billion in 2025, putting Amazon in the same league as other tech giants investing heavily in AI infrastructure:
- Alphabet plans to invest $75 billion in AI and cloud data centers.
- Meta Platforms Inc. (NASDAQ: META) is set to spend up to $65 billion on AI expansion.
- Microsoft expects $80 billion in capex to build out its AI capabilities.
- Oracle Corp. (NYSE: ORCL) is involved in a large joint venture to expand AI-driven cloud services.
The question on investors’ minds isn’t just when AI spending will be monetized—it’s whether it will be legitimized with tangible returns. Some on Wall Street are growing impatient, questioning how soon these multi-billion-dollar investments will translate into meaningful profitability.
Amazon’s Profitability and Valuation: Still a Strong Bet?
Despite the surge in capex, Amazon remains a favorite among analysts and institutional investors. The company is projected to achieve:
- 11% revenue growth in the next two fiscal years
- 22% net earnings growth in both years
- AWS contributing significantly to operating income
Amazon shares currently trade at 32 times estimated earnings, well below their 10-year historical average of over 50. This valuation is also cheaper than Walmart Inc. (NYSE: WMT) and not much higher than Apple Inc. (NASDAQ: AAPL) or Microsoft.
With 94% of analysts rating the stock a Buy, Amazon remains the largest overweight holding among hedge funds, according to Jefferies. Portfolio managers like Sarah Henry from Logan Capital Management remain bullish, believing that once Amazon’s AI spending stabilizes, a higher level of profitability will emerge, making the stock even more attractive.
Amazon’s next earnings report will be a pivotal moment, as investors assess whether AWS can maintain its dominance and whether AI spending will start delivering real returns.
