Amazon.com (NASDAQ: AMZN) reported quarterly revenue that topped expectations on Thursday, but markets focused on the company’s 2026 capital expenditure forecast of roughly $200 billion—far above what analysts had anticipated.
Shares ended Friday down 5.55%, though they pared earlier losses as a broad rally on Wall Street boosted risk assets.
The results arrive amid a notable rotation out of technology stocks into other sectors. Investor sentiment has shifted from viewing the tech sector broadly as an AI beneficiary to a more selective approach, with clear winners and losers emerging. Software firms have been singled out as laggards, with weakness spreading to chipmakers and the wider tech space.
Concerns around stretched valuations and aggressive spending plans have also weighed on sentiment. Amazon’s projected $200 billion in 2026 capex significantly exceeded the consensus estimate of $146.11 billion.
Despite those concerns, Morgan Stanley analyst Brian Nowak struck an optimistic tone, noting that AWS is gaining momentum with stronger growth ahead, while Amazon’s retail business continues to improve efficiency. Although the company is ramping up investment across AWS, Retail, and its low-Earth-orbit initiatives, Nowak highlighted Amazon’s solid history of delivering returns on invested capital, keeping the firm bullish on what it views as an underappreciated GenAI leader.
Amazon’s guidance followed closely on the heels of Alphabet (NASDAQ: GOOGL), which also surprised investors earlier in the week with plans to spend as much as $185 billion in capital expenditures in 2026.
On the earnings front, Amazon narrowly missed profit expectations, posting earnings of $1.95 per share—one cent below forecasts—on revenue of $213.39 billion for Q4 2025, representing a 13.6% year-over-year increase. Revenue exceeded the consensus estimate of $211.27 billion.
Emarketer principal analyst Sky Canaves described the results as slightly mixed, citing strong overall revenue growth and a notable acceleration in the cloud business, which had been closely watched by investors.
Looking ahead, Amazon forecast first-quarter 2026 revenue in the range of $173.5 billion to $178.5 billion, compared with analyst expectations of $175.2 billion.
CEO Andy Jassy said the company plans to invest heavily in areas such as AI, custom chips, robotics, and low-Earth-orbit satellites, adding that Amazon expects these investments to generate strong long-term returns on invested capital despite the elevated spending outlook.
An overview of AWS
For Amazon, one of the Magnificent Seven, Amazon Web Services (AWS) sits at the core of its AI strategy and remains its fastest-expanding business. AWS generated $35.58 billion in revenue in Q4, marking a 23.6% year-over-year increase. Beyond cloud services, the unit includes Amazon’s AI development platforms and infrastructure—such as Bedrock—as well as products like Alexa and Polly.
According to Emarketer analyst Canaves, AWS delivered an uncommon performance in Q4 by outpacing the advertising segment’s growth while also improving operating margins. Amazon has also deepened its exposure to AI through a substantial investment in Anthropic, the startup behind the Claude AI models.
Amazon revealed in October that it had added 3.8 gigawatts of cloud computing capacity over the past year—more than any rival provider. CEO Andy Jassy noted during the earnings call that AWS’s power capacity has doubled since 2022 and is expected to double again by 2027.
UBS has argued that the market is not fully accounting for the implications of Amazon’s aggressive capital expenditure plans. The bank raised its combined CapEx forecast for 4Q25–4Q27 to $344 billion from $300 billion, including an increase in AWS investment estimates from $225 billion to $260 billion.
UBS analysts Stephen Ju and Vanessa Fong believe Amazon shares remain undervalued, as neither they nor broader markets are factoring in the possibility that AWS revenue could double by 2028. They estimate this scenario could generate an additional $20 billion in free cash flow that year.
Despite these growth drivers, Amazon’s stock has lagged its Magnificent Seven peers. Shares rose just 5.2% in 2024—the weakest performance among the group—and trailed the S&P 500’s 16.4% gain. Performance in the current year has also been modest, with Amazon up 0.9% year-to-date, compared with the S&P 500’s 0.5% increase.
While AI continues to attract attention, Amazon’s core business is still its e-commerce, retail, and subscription services—primarily housed in its North America segment. This division posted Q4 revenue of $127.08 billion, up 9.9% year over year.
Consumer spending faced increasing pressure last year amid economic challenges. The National Retail Federation projects 2025 holiday sales growth of 4.1%, down from 4.3% in 2024, while consumer confidence has recently dropped to its lowest level since May 2014.
Even so, Amazon’s retail operations showed resilience during the critical holiday season. Canaves noted that profitability in North America improved due to stronger fulfillment efficiency, despite faster delivery rollouts. Meanwhile, Amazon’s AI shopping assistant, Rufus, is gaining adoption and contributing to higher sales among users.
Sources: Anuron Mitra
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