Amazon spending looks painful but it’s not a reason to sell
Jim Cramer is urging Amazon investors to be patient and trust the cloud and e-commerce company’s massive spending strategy despite obvious risks to profits. “I have full faith,” Jim said on Friday’s “Squawk on the Street.” “[Amazon CEO Andy Jassy] knows how to do this. So I believe and I’m not running away.” It fell 5.6% to $210 on Friday, the evening before management issued guidance for $200 billion in capital expenditures, compared with an expected $146.6 billion. The company also issued a lower-than-expected earnings outlook for the quarter. Speaking to investors on a post-earnings conference call on Thursday, the team said the bulk of that spending will go to Amazon Web Services infrastructure, AI. Jassy said the company’s Trainium custom chips, AWS’s artificial He said there was “very strong demand” for Trainium3 (the latest release) as a key pillar of its strategy to make intelligence workloads more affordable, with nearly all supply expected to be completed by mid-year. Amazon Web Services cloud growth was at 24% year-on-year, the fastest pace in the last 13 quarters. [on Amazon] AWS’s backlog reached $244 billion, up 40% from the previous quarter and 22% from quarter to quarter, Jeff Marks, the club’s portfolio manager, said Friday. Marks also noted that margins in the cloud unit were strong, which he told investors “there is no waste of capacity and it is operating as efficiently as possible.” But Amazon’s higher-than-expected capital expenditures imply it will have very little cash. Looking at Amazon’s earnings report, its free cash flow forecast for 2026 was $37 billion, according to FactSet. Compared to the $200 billion annual capex forecast, which comes in at $50 billion above expectations, it’s clear Wall Street defines free cash flow as operating cash flow minus capital expenditures. Tech giants including Alphabet and Meta Platforms also plan to spend more than expected. But Jim noted that investors are seeing clearer returns in the short term, something Amazon hasn’t yet fully proven. Wedbush lowers Amazon price target to $300 from $340; Cantor Fitzgerald reduced its target from $260 to $250; Aside from high capex, DA Davidson argued that AWS is lagging behind Google Cloud, which is up 48%, and Microsoft’s Azure, which is up 39% in its latest earnings. Analysts agree that the law of large numbers contributes to AWS’s perceived lower growth rate compared to its mega-capitalization peers; Analysts said they could face a “structural disadvantage” if they don’t integrate AI platforms like ChatGPT and Gemini more deeply. Analysts said they had hoped Amazon would announce such integrations, but instead management focused on its in-house assistant Rufus while pushing back timelines for involvement in broader AI models. [Amazon]. “I think it’s entirely possible it went to $190 because it was such a shocking surprise,” Jim said. Amazon shares have lost 12% in the last 12 months. While Amazon’s strategy will ultimately pay off, investors should expect more volatility in the short term. Following press Thursday evening, we reiterated our buy-equivalent 1 rating but lowered our price target to $250 per share from $275. Friday on CNBC, “Halftime Report.” We think Nvidia, whose chips are considered the gold standard for artificial intelligence, is one of the biggest beneficiaries of this spending, with Nvidia CEO Jensen Huang calling Big Tech’s increased capital spending “appropriate and sustainable.” So while our other Club chip stock, Broadcom, has been in the red so far due to market rotation coming out of tech, we believe in both stocks. While companies like Amazon and Alphabet have been buyers of Nvidia chips, when asked in the CNBC interview whether he sees proprietary chips like AWS’s Trainiums as a threat, Jensen said no company can develop AI chips at the scale and quality as Nvidia (Jim Cramer’s Charitable Trust long AMZN, GOOGL, MSFT, META). Click here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a transaction alert before buying or selling a stock in his charitable foundation’s portfolio. After Jim talks about a stock on CNBC TV, he waits 72 hours after issuing his trading alert before executing the trade. BY OUR TERMS AND CONDITIONS AND PRIVACY POLICY NO Fiduciary Obligations OR DUTIES SHALL EXIST OR BE CREATED IN CONNECTION WITH THE RECEPTION OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
