Amazon Bets on AI Spending: Will Capex Drive Growth or Prove Risky?

Core Insights - Amazon is significantly investing in artificial intelligence, with capital expenditure reaching $31.4 billion in Q2 2025, primarily for AI infrastructure and cloud technologies, indicating a potential annual expenditure exceeding $100 billion [1][10] - The strategy focuses on scaling AWS to support larger language models and advanced AI services while securing high-value enterprise contracts [2] - AWS revenues have shown a year-over-year increase of 17.5%, with projections of nearly 18% growth for both 2025 and 2026 [2][10] Investment and Growth Strategy - Expanded AI capacity is expected to unlock higher-margin generative AI services, attract new enterprise contracts, and enhance customer loyalty [3] - Investments in robotics, same-day delivery facilities, and automation aim to reduce costs and improve fulfillment speed, supporting long-term retail growth [3] Competitive Landscape - Microsoft is also heavily investing in AI, with fiscal 2025 capital expenditure exceeding $64 billion, focusing on AI data centers and custom chip clusters, which positions it ahead of AWS in generative AI projects [6] - Alphabet Inc. has raised its 2025 capital expenditure guidance to $85 billion, with significant investments in data centers and AI infrastructure, indicating a strong competitive push in the AI space [7] Financial Performance and Valuation - Amazon's share price has returned 4.7% year-to-date, underperforming compared to the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector [8] - The stock appears overvalued with a forward 12-month price/sales ratio of 3.24X, higher than the industry average of 2.26X, and holds a Value Score of D [11] - The Zacks Consensus Estimate for Amazon's 2025 earnings is $6.73 per share, reflecting a 21.7% increase from the previous year [14]