Amazon Bets on AI Spending: Will Capex Drive Growth or Prove Risky?

Amazon AMZN is betting big on artificial intelligence, with the capital expenditure soaring to $31.4 billion in the second quarter of 2025, largely directed toward AI infrastructure and cloud technologies. Management noted this level of spending is likely to persist through the year, implying more than $100 billion in annual capital expenditure.The strategy is clear: build the scale needed for AWS to power larger language models and advanced AI services, while securing higher-value enterprise contracts.The buildout of AI-driven data centers and custom silicon like Trainium positions AWS for durable leadership. These efforts are already showing results; AWS revenues increased 17.5% year over year, with Zacks models projecting nearly 18% growth for both 2025 and 2026.Expanded AI capacity can unlock higher-margin generative AI services, win new enterprise contracts and deepen customer stickiness. Beyond the cloud, investments in robotics, same-day delivery facilities and automation are designed to lower costs, speed fulfillment and support retail growth over the long term.Still, the risks are significant. Such heavy capital outlays translate into rising depreciation expenses, pressuring AWS’s profitability. Management has guided AWS’s operating margin down to 35% in 2025 from 39.5%, acknowledging near-term margin fluctuations.Amazon's bet relies on capturing a share of a fast-growing market. Per the UNCTAD report, the global AI industry is projected to reach $4.8 trillion by 2033, and the company's bold spending may ultimately prove to be worth the investment. Moreover, its third-quarter 2025 revenue estimate of $174-$179.5 billion underscores confidence in this high-level strategy.Amazon’s AI Rivals Step Up With Massive InvestmentsMicrosoft MSFT is spending aggressively on AI, with the fiscal 2025 capital expenditure surpassing $64 billion and more than $30 billion set for the first-quarter fiscal 2026 alone. Microsoft is expanding AI data centers, custom chip clusters and training capacity, while integrating OpenAI and Anthropic models. With Azure and productivity tools like Office, Teams and Windows infused with AI, Microsoft now leads AWS in GenAI projects, offering stronger enterprise traction and steadier growth than Amazon.Alphabet Inc. GOOGL is also ramping up AI investment. It raised the 2025 capital expenditure guidance to $85 billion from the $75 billion mentioned earlier, with $22.5 billion spent in the second quarter alone. Alphabet is expanding data centers, accelerating server deliveries, and committing $9 billion to boost AI and cloud infrastructure in Oklahoma. Alphabet expects even higher capital expenditure in 2026, driven by soaring AI demand and cloud growth opportunities.AMZN’s Share Price Performance, Valuation & EstimatesAmazon shares have returned 4.7% in the year-to-date period, underperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 12.4% and 9%, respectively.AMZN’s YTD Price Performance Image Source: Zacks Investment Research From a valuation standpoint, the AMZN stock appears overvalued, trading at a forward 12-month price/sales ratio of 3.24X, higher than the industry’s 2.26X. Amazon has a Value Score of D.AMZN’s Valuation Image Source: Zacks Investment Research The Zacks Consensus Estimate for AMZN’s 2025 earnings is pegged at $6.73 per share, which has seen an upward revision of 3 cents over the past 30 days. This indicates a 21.7% increase from the figure reported in the year-ago quarter. Image Source: Zacks Investment Research Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.See our %%CTA_TEXT%% report – free today!7 Best Stocks for the Next 30 DaysWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks