Investors expected the companies to boost spending after pegging their futures to the technology, but some analysts said the size of the increases surprised the market and raised questions about whether returns can keep pace.“While rising capital intensity is not a surprise in terms of direction, the magnitude of spending is significantly greater than consensus expectations,” MoffettNathanson analysts said, referring to Amazon’s forecast for a 50% increase in spending.
The increase in spending has revived comparisons to the Internet-era boom of the early 2000s, which helped build the modern Internet but provided only modest returns for many companies that financed the underlying infrastructure.
Amazon’s prediction also came amid broader volatility related to AI expectations. Shares of Microsoft and Alphabet, Amazon’s two biggest cloud rivals, fell after their gains even as new technology from the AI startups they backed caused a plunge in software stocks and intensified debate over an existential threat to the sector.
The S&P 500 software and services index has lost about $1 trillion in market value since Jan. 28. Russ Mold, investment director at AJ Bell, said the declines reflected a move away from equities “where positive surprises may be difficult to achieve and it is easier to disappoint than many might think.”
He said hyperscalers, or large cloud companies, are now moving from an asset-light model to a more capital-intensive model, with capital investment growth far outpacing revenue growth.
Amazon would lose about $200 billion in market value if losses continue. It trades at a price-to-earnings ratio of 27.01, compared to Microsoft’s 21.62 and Alphabet’s 28.36.
TECH LEADERS ARE IN SPENDING
Big Tech CEOs have so far been undeterred by questions about spending, promising that the returns from AI will far outweigh what they see as the costs of competing in a high-stakes race.
Amazon CEO Andy Jassy echoed that sentiment during the post-earnings call, defending Amazon Web Services’ 24% revenue growth, which was slower than rival Google Cloud’s 48% growth and Microsoft’s Azure 39% growth.
“As a reminder,” he told analysts, AWS is a much larger company than its peers and maintaining that level of growth on such a large base is another thing.
Some analysts supported his argument, but said the spending left no room for error.
“We don’t think they would spend $200 billion in FY26 if they didn’t have the right demand signals, but the margin for error is shrinking,” MoffettNathanson analysts said.
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