Amazon shares more than 1 percent on Tuesday, gaining a nine-day drop that declined billions from its market cap. The stock lost about 18 percent of its value in the period between February 2 and Friday, the biggest loss streak since 2006, and wiped out an excess of over $450 billion in market value as investors cast doubt on the virtue of its artificial intelligence expenditure strategies.
The selling spurt on Amazon is pegged on the fourth-quarter earnings report published by the company earlier this month. Amazon estimated that it would spend $200 billion in capital expenditures this year, approximately 60 per cent higher than its outlays last year and more than $50 billion above Wall Street’s forecast.
The majority of the expenditure will be allocated to AI-related projects, which demand additional infrastructure, including data centers, chips, and networking devices.
Investors have become more worried about the substantial AI investments by tech companies and how they might reduce or disappear in free cash flows.
The capital expenditures of Alphabet, Microsoft, Meta, and Amazon may reach up to $700 billion this year as the corporations are competing to expand more infrastructure.
Alphabet and Microsoft stocks dropped on Tuesday by more than 1 percent, and Meta’s stock dropped by less than 1 percent. Both Microsoft and Alphabet shares recorded their fifth consecutive negative performance.
Amazon CEO Andy Jassy justified the large investment by saying to analysts in a conference call that he’s confident it will “yield strong returns on invested capital.”
Amazon Web Services CEO Matt Garman has also attempted to defend the upsurge in spending, telling CNBC in an interview last week that the capex increase will enable the company to capitalize on AI opportunities in the cloud.
Wedbush analysts wrote in a research note after Amazon’s fourth-quarter report that the company is now in “prove it mode” to demonstrate to investors that it can offer a return on capex spending.
The analysts wrote, “The increase in spending will remain an overhang as investors digest the guide and will likely need to see more tangible returns before regaining comfort.” The company has an outperforming rating on Amazon shares.
Andrew Boone, Citizens Managing Director and Research Analyst, told CNBC on Tuesday that he remains “bullish” on AWS despite the recent sell-off.
He stated in response to Jassy’s comment that Amazon projects to double data center capacity by 2027 as an “underappreciated” growth driver to the cloud business.
“We think that’s going to lead to an acceleration in terms of AWS revenue as more capacity comes online,” Boone said in an interview on CNBC’s “The Exchange.”
