Amazon's Capital Spending Skyrockets 50% in 2026, Shares React Negatively

Amazon (AMZN) is going all-in on artificial intelligence this year, unveiling plans to hike its capital spending by over 50% in 2026. The company aims to pump roughly $200 billion into expanding its AI infrastructure, a move that spooked markets and sent its shares tumbling 11.5% after hours.

The announcement contrasts sharply with the confident tone struck by Alphabet (GOOGL) earlier in the week, which posted strong growth in its AI-driven cloud segment. Meanwhile, Amazon's cloud arm, Amazon Web Services (AWS), did post a solid 24% revenue increase to $35.6 billion for the December quarter, but remains smaller than its peers, with Google Cloud and Microsoft Azure showing faster growth rates of 48% and 39% respectively.

CEO Andy Jassy acknowledged the challenge during the earnings call, highlighting the difficulty in sustaining high growth rates on a massive base like AWS's $142 billion annualized revenue. Yet, investors appeared uneasy with the ramped-up spending, as the stock slid 4.4% during the regular session before the after-hours selloff.

The surge in capital expenditure is largely tied to Amazon's commitment to AI technologies. It joins other tech giants, including Microsoft (MSFT) and Meta, in pouring hundreds of billions into AI innovation this year. Collectively, the so-called hyperscalers are expected to spend upwards of $630 billion in 2026.

Despite AWS contributing a disproportionate share of Amazon's profits-over 60% of operating profit despite making up only 15-20% of total sales-the company expects first-quarter operating income between $16.5 billion and $21.5 billion. This forecast factors in about $1 billion in expenses linked to higher costs at its satellite internet venture, Project Leo, which raised eyebrows as analyst estimates hovered near $22 billion.

The company is also adapting its physical retail strategy, taking a $610 million impairment charge related to Amazon Go and Amazon Fresh stores as it shutters these operations and refocuses on expanding Whole Foods. This expansion includes plans for a massive 225,000-square-foot store designed to compete with giants like Walmart and Costco.

On the digital side, Amazon's advertising segment remains a bright spot, with sales jumping 22% to $21.3 billion in Q4. Jassy pointed to new AI-powered tools integrated into Prime Video advertising, aimed at reducing human involvement in the ad creation process.

Meanwhile, Amazon has cut approximately 30,000 corporate jobs over recent quarters, citing AI-driven efficiencies and a shift in corporate strategy. Yet workforce numbers still ended 2025 higher than the year before, reflecting ongoing investments in growth areas despite the layoffs.

Not everyone is buying into the rosy AI investment story just yet. Some market observers pointed out the disconnect between soaring capital expenditures and the pressure to demonstrate corresponding financial returns. This tension highlights a broader market skepticism about whether the current AI spending bonanza will pay off or weigh down profitability.