Amazon (NASDAQ:AMZN) is making one of the boldest wagers in its history with record capital spending aimed at artificial intelligence. In Q2 2025, the company spent $31.4 billion, primarily directed toward AI infrastructure and cloud technologies. Management indicated this pace will continue, pushing annual capital expenditure above $100 billion.
The objective of Amazon AI investment is straightforward: expand Amazon Web Services (AWS) to handle more advanced generative AI models, secure lucrative enterprise contracts, and maintain a leadership role in global cloud services.
AWS Growth Amid Heavy Amazon AI Spending
Amazon Web Services continues to be the centerpiece of Amazon’s AI strategy. AWS revenues increased 17.5% year over year in Q2, with forecasts projecting nearly 18% annual growth in both 2025 and 2026.
The company is ramping up capacity through new AI-driven data centers, robotics, and custom chips such as Trainium, which are designed for training large language models efficiently. This expanded infrastructure not only powers high-value enterprise workloads but also improves customer retention by embedding AI more deeply into client operations.
However, significant risks remain. Heavy capital spending comes with high depreciation and rising costs. Amazon projects AWS operating margins to decline from 39.5% in 2024 to 35% in 2025. For investors, this raises concerns about whether long-term gains will outweigh near-term profitability pressures.
The Bigger AI Battle: Amazon vs. Rivals
Amazon’s rivals are not sitting still. Both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are dramatically increasing their own AI investments.
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Microsoft (MSFT): The company’s fiscal 2025 capital expenditure topped $64 billion, with more than $30 billion planned for the first quarter of fiscal 2026 alone. Microsoft has expanded AI data centers and integrated OpenAI’s models into Azure, Office, and Teams, giving it a lead in generative AI adoption among enterprise clients.
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Alphabet (GOOGL): The Google parent boosted 2025 capex guidance to $85 billion, spending $22.5 billion in Q2 alone. With $9 billion earmarked for expanding AI and cloud infrastructure in Oklahoma, Alphabet expects even larger spending in 2026 to support surging AI demand.
This competitive backdrop underscores the urgency of Amazon AI investment. While AWS remains a cloud leader, Microsoft and Alphabet’s diversified AI integrations may allow them to capture greater enterprise market share.
Amazon’s Stock Performance and Valuation
Despite its bold spending, Amazon stock has lagged peers in 2025. Shares are up only 4.7% year-to-date, compared to 12.4% for the Zacks Internet – Commerce industry and 9% for the Zacks Retail-Wholesale sector.
From a valuation perspective, AMZN stock appears stretched. The stock trades at a forward 12-month price-to-sales ratio of 3.24x, well above the industry average of 2.26x. Amazon stock also holds a Value Score of D, suggesting it is not attractively priced compared to its peers.
Still, earnings expectations are improving. The Zacks Consensus Estimate for 2025 earnings has risen to $6.73 per share, a 21.7% year-over-year increase, with upward revisions in the last 30 days.
The Long-Term Outlook for Amazon AI Investment
Amazon’s AI gamble reflects a high-stakes strategy. The global AI market is projected to reach $4.8 trillion by 2033, according to UNCTAD, meaning that Amazon’s upfront spending could pay off handsomely if AWS secures lasting leadership.
In the near term, however, investors considering Amazon stock must weigh declining margins and the risk of overspending against the potential for transformative growth. If AWS maintains its pace of revenue expansion and successfully monetizes new AI services, Amazon AI investment could prove to be one of the defining growth drivers of the next decade.
For now, AMZN stock remains a long-term growth story—one that hinges on the balance between aggressive spending and sustainable profitability.
Featured Image: Unsplash © christianw
