Amazon leads Big Tech’s $1 trillion rout on AI bubble fears
Amazon Shares tumbled more than 5% on Friday after the company’s high spending forecast surprised investors already wary that the AI boom risked turning into a bubble.
The e-commerce company on Thursday became the latest tech giant to announce plans for a major increase in capital spending, following parent Google Alphabet, Microsoft And Meta all have signaled they expect the spending spree to continue.
Amazon, Alphabet, Microsoft and Meta reported nearly $120 billion in capital expenditures in the fourth quarter alone. This figure may exceed $660 billion this year. Financial Times It was reported that this figure is higher than the gross domestic product of countries such as the United Arab Emirates, Singapore and Israel.
Wall Street has reacted differently to the companies’ spending plans, backing the forecasts of Meta and Alphabet while punishing Amazon and Microsoft.
Amazon, Microsoft, NvidiaMeta, Google and Seer They collectively lost more than $1 trillion on their valuations last week, according to FactSet data. Amazon lost the most of the group, losing just over $300 billion in market value.
Shares of companies developing hardware for building artificial intelligence will likely face continued volatility due to “spillover sentiment,” Paul Markham, chief investment officer at GAM Investments, told CNBC.
“Questions about the size of capex as a result of increases in LLM, its ultimate return and fears of eventual over-expansion of capacity will persist,” he added.
Amazon’s posts last month
‘Investors are questioning every aspect of the artificial intelligence race’
Amazon announced in its fourth-quarter earnings report that capital expenditures are expected to reach $200 billion in 2026; This is above analysts’ expectations of $50 billion.
“Suddenly we went from fearing that you might not be last to investors questioning every angle in this AI race.”
Analysts at DA Davidson downgraded Amazon’s stock to neutral from a buy rating on Friday, citing concerns about spending plans, risks to cloud dominance and the potential for artificial intelligence to erode its retail business.
“In the context of results from Microsoft and Google, we see AWS continuing to lose its lead and now struggling to catch up with increased investments,” analysts wrote in a research note. “We are also increasingly concerned about Amazon retail’s transition to the new chat-oriented internet dominated by Gemini and ChatGPT.”
AppleOn the other hand, shares of Apple, which has faced pressure from Wall Street on its artificial intelligence strategy and has previously committed to much less investment spending than other Big Tech companies, have risen 7% since Monday, driven by what CEO Tim Cook described as “staggering” demand for the iPhone.
“The bet is becoming binary,” Michael Field, Morningstar’s chief equity strategist, told CNBC, referring to massive investments in companies called the Magnificent Seven. “If these investments do well, it’s either a big return, or if they go wrong, it’s a huge waste of shareholders’ cash.”
— CNBC’s Annie Palmer and Elsa Ohlen also contributed to this report.
