Amazon accelerates expenditure in the Big Tech
There is a distinction between merely accelerating and fully unleashing the throttle. In the realm of artificial intelligence investment, Amazon.com has recently taken decisive action. In its fourth-quarter results announced Thursday afternoon, Amazon emerged as the latest technology behemoth to forecast a significant increase in capital expenditures for the current year, following a substantial rise in the previous year. Amazon refrained from providing a specific forecast; however, it indicated that the $26.3 billion in capital expenditure for the most recent quarter serves as a run rate that is likely to be “reasonably representative” of the company’s spending for the year.
The annual figure is projected to reach approximately $105 billion, reflecting a 35% increase from the previous year’s total and significantly surpassing the $86 billion anticipated by analysts, as per consensus estimates from Visible Alpha. Given that Amazon categorizes its capital expenditures as cash outlays and equipment obtained through finance leases, minus the revenue generated from the sale of property and equipment, the true cash outflow is expected to be greater. In the fourth quarter, the company’s cash flow statement revealed that expenditures on property and equipment, adhering to the conventional definition of capital expenditure, amounted to $27.8 billion. Regardless, it is undoubtedly a substantial figure. Alphabet, the parent company of Google, utilized its own report earlier this week to reveal intentions to allocate $75 billion in 2025, following an expenditure of approximately $52.5 billion in the previous year. Two weeks prior, Meta’s Chief Executive Mark Zuckerberg announced that the parent company of Facebook would divest up to $65 billion this year, following an expenditure of $39.2 billion in 2024. Following Microsoft’s quarterly report last week, analysts have adjusted their forecasts, now anticipating total capital spending to approach $94 billion for the year, as per consensus estimates from Visible Alpha. This follows a remarkable 83% increase in expenditure by the software giant in 2024.
The spending forecasts arising from the latest earnings reports of major technology firms are especially significant in light of recent disclosures from a Chinese AI startup named DeepSeek, which asserts that it has achieved technical advancements enabling the training of sophisticated AI models at a considerably lower computing cost than that of its American counterparts. The development triggered a broad market selloff, significantly impacting AI chip designers such as Nvidia. This reaction stemmed from the belief that DeepSeek’s advancements could ultimately reduce the demand for the costly computing systems essential for AI services. Amazon appears to hold a differing perspective. “One of the intriguing developments in recent weeks is the tendency for individuals to assume that a reduction in the cost of any technological component, particularly in the realm of inference, will inevitably result in a decrease in overall technology expenditure,” remarked Chief Executive Andy Jassy during the company’s earnings call on Thursday. “This has not been observed to occur.”
The substantial expenditure intentions of major technology firms bode well for Nvidia, despite its stock remaining approximately 13% lower since the DeepSeek selloff. In a note released Thursday after Amazon’s results, Srini Pajjuri, a chip analyst at Raymond James, expressed that “we are not overly concerned about a potential spending pause.” However, this extravagant expenditure may also exacerbate concerns among investors regarding the ultimate returns associated with such exorbitant levels of investment. Amazon’s stock experienced a decline of over 4% in after-hours trading on Thursday, following the announcement of increased capital expenditure targets, which coincided with a revenue and operating earnings forecast for the first quarter that fell short of Wall Street’s expectations. Jassy remarked during the call that Amazon refrains from acquiring data center hardware and chips “unless we observe substantial indications of demand.” He positioned Amazon’s substantial expenditure as a positive indicator for its AWS cloud computing division, which currently generates over $107 billion in annual revenue and is projected to exceed $150 billion by 2026, based on the latest FactSet estimates. Even at the Everything Store, investment is essential for generating profit.
