Amazon Bets Big on AI With $200B Capex: Buy, Sell or Hold the Stock?

Core Insights - Amazon.com, Inc. (AMZN) reported mixed results for Q4 2025, with revenues of $213.4 billion, a 14% year-over-year increase, but earnings per share of $1.95 fell short of expectations by 1.52% [1] - The announcement of a $200 billion capital expenditure plan for 2026 raised concerns among investors about the impact on near-term returns, despite the strong revenue performance [1] Financial Performance - Q4 2025 revenues reached $213.4 billion, exceeding expectations and reflecting a 14% increase year over year [1] - Earnings per share were $1.95, which narrowly missed the consensus estimate [1] - Free cash flow declined 71% year over year to $11.2 billion, raising concerns about future returns [5] AWS and AI Developments - Amazon Web Services (AWS) generated $35.6 billion in Q4 revenues, marking a 24% year-over-year growth, the fastest in 13 quarters [3] - AWS order backlog increased by 40% year over year to $244 billion, indicating strong demand [3] - The custom silicon strategy is gaining traction, with Trainium and Graviton chips achieving a combined annual revenue run rate exceeding $10 billion [4] Strategic Guidance - For Q1 2026, Amazon projected net sales between $173.5 billion and $178.5 billion, representing 11-15% year-over-year growth [6] - Operating income guidance is set between $16.5 billion and $21.5 billion, factoring in increased costs from various investments [6] Advertising and Operational Efficiency - Q4 advertising revenues reached $21.3 billion, up 23% year over year [7] - Amazon announced 16,000 corporate layoffs in January 2026 to streamline operations and improve efficiency [7] - Prime delivery speeds improved significantly, with over eight billion items delivered same-day or next-day, a 30% increase from the previous year [7] Valuation and Competitive Landscape - AMZN stock is currently trading at a forward 12-month price/earnings ratio of 25.67X, higher than the industry average of 22.23X, indicating potential overvaluation [8] - Amazon's stock has underperformed compared to competitors, with a 9.6% decline over the past year, while Microsoft and Alphabet have seen positive returns [12] Competitive Threats - Competitors like Alphabet's Google Cloud and Microsoft Azure reported higher growth rates than AWS, indicating increasing competitive pressure [16] - The narrowing competitive gap in the cloud market is a concern, with significant investments from rivals in AI and cloud infrastructure [16]