Amazon shares rose by over 1% on Tuesday, breaking a nine-day downturn that wiped billions from its market capitalization.
The stock lost approximately 18% of its value between Feb. 2 and Friday, marking the longest losing streak since 2006 and erasing over $450 billion in market value as investors doubt the viability of its artificial intelligence investment strategies.
The sell-off surrounding Amazon is linked to the company’s fourth-quarter earnings report published earlier this month.
Amazon indicated that it plans to allocate $200 billion in capital expenditures this year, nearly a 60% rise compared to last year and over $50 billion above Wall Street’s expectations. A significant portion of the expenditure is anticipated to be directed toward AI-related projects, which will necessitate increased infrastructure such as data centers, chips, and networking gear.
Investors are becoming more apprehensive regarding tech corporations’ substantial AI investments and their capacity to diminish or eliminate free cash flows.
Alphabet, Microsoft, Meta and Amazon’s capital expenditures could reach $700 billion this year as these firms compete to enhance their infrastructure.
Shares of Alphabet and Microsoft dropped more than 1% on Tuesday, while Meta’s stock fell by less than a percent. Microsoft and Alphabet both experienced their fifth consecutive negative session.
Amazon CEO Andy Jassy defended the company’s substantial expenditure, assuring analysts in a conference call that he is confident it will “produce significant returns on invested capital.”
Amazon Web Services CEO Matt Garman has also attempted to rationalize the increase in spending, stating to CNBC in an interview last week that the capital expenditure enhancement will enable the firm to capitalize on AI opportunities in the cloud.
Wedbush analysts noted in a research note after Amazon’s fourth-quarter report that the company is currently in “prove it mode” to demonstrate to investors that it can generate a return on capex investments.
“The rise in spending will continue to be a concern as investors consider the guidance and will probably need to see more concrete returns before feeling reassured,” the analysts stated. The firm maintains an outperform rating on Amazon shares.
Andrew Boone, managing director and research analyst at Citizens, informed CNBC on Tuesday that he remains “optimistic” regarding AWS despite the recent downturn.
He highlighted Jassy’s comment that Amazon aims to double its data center capacity by 2027 as an “underappreciated” factor driving growth for the cloud division.
“We believe this will lead to an uptake in AWS revenue as additional capacity comes online,” Boone said during an interview on CNBC’s “The Exchange.”
— CNBC’s Nick Wells contributed to this piece.
