Amazon (AMZN) and Google-parent Alphabet (GOOGL) are collectively spending a ton on AI, to say the least. Nonetheless, based on a top-ranked Citi analyst, they’re doing it with remarkably completely different monetary security nets, with main implications for his or her buyers.
Citi International Head of Tech and Communications Heath Terry argues that the AI arms race isn’t nearly who has demand, but in addition about who will pay for the following massive section with out weighing down their steadiness sheet.
That’s precisely the place Amazon and Google begin to diverge.
For perspective, TipRanks signifies that Terry is a 5-star Wall Avenue analyst.
He’s among the many high analysts tracked, with a 67% success price, together with an common return of 26.5% on his sharp inventory calls.
The straightforward a part of AI is over, and the inventory market sentiment is reflecting that of late.
Google’s inventory is down 4.5% prior to now week, whereas Amazon’s inventory has tanked 12% over the identical interval.
However, Google is getting into this new section with a much more strong funding engine, flush with substantial free money movement. Conversely, Amazon finds itself layering AI spending onto an already capex-hungry enterprise, with weaker free money movement, whereas making debt a extra possible bridge.
The takeaway isn’t merely which enterprise wins the AI race; the price of staying aggressive is a distinction that reveals up clearly of their financials.
A high analyst says Amazon and Google face diverging monetary dynamics, regardless of working in the identical tech panorama.
Photograph by Bloomberg on Getty Pictures
AI’s subsequent section exposes a widening funding hole
Terry is arguing that AI spending is shifting from experimentation to full-scale enterprise deployment, and in that, the true check is scaling up with out stressing the steadiness sheet.
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The following section has much less to do with including a number of GPUs however with constructing the economic spine. That entails developing information facilities, energy infrastructure, cooling programs, and networking gear, amongst different issues.
That’s precisely the place Terry sees the divergence.
Google is getting into a brand new section with an enormous inner money engine, however given the margin-heavy nature of its enterprise, it might fund the growth with inner assets. Amazon, in contrast, is layering huge AI capex on high of a retail and logistics enterprise that’s already consuming lots of capital.
Google’s money engine appears to be like constructed for the AI capex battle
Google and Amazon are each in a race so as to add AI capability at a relentless tempo.
Nonetheless, FY 2025’s cash-flow image reveals that each firms are working that race with fully completely different “fuel tanks,” and 2026 is more likely to solely widen that hole.
- In FY2025, Alphabet generated almost $70 to $73 billion in free money flows, whereas Amazon’s trailing 12-month free money movement dropped to $11.2 billion as AI-linked capex jumped.
- In FY2025, Alphabet posted $139.5 billion in working money movement and spent roughly $91.4 billion on capex. On the flip facet, Amazon additionally delivered $139.5 billion in working money movement whereas spending roughly $131 billion on capex, leaving a far thinner free-cash buffer.
- From FY2024 to FY2025, Amazon’s trailing free money movement tanked from $38.2 billion (2024) to $11.2 billion (2025), exhibiting how shortly the AI buildout might swallow internally generated money.
- In FY2026 steering, Alphabet instructed buyers to anticipate $175 to $185 billion of capex (almost double FY2025’s $91 billion), based on CNBC, whereas in FY2026 steering, Amazon projected roughly $200 billion of capex (up about 50% from FY2025’s $131 billion).
Therefore, Terry’s concern is that Amazon’s spending might outpace money era, pushing free money movement into damaging territory and making borrowing the least disruptive possibility.
One other sharp dynamic, recognized by TheStreet tech skilled and monetary journalist Vuk Zdinjak, is maybe equally disconcerting.
In his newest piece on Amazon, Zdinjak says the Amazon’s incessant spending is being constructed round shoppers who nonetheless aren’t financially self-sustaining.
He notes that Mission Rainier was developed for Anthropic and {that a} massive chunk of Amazon’s $244 billion backlog is linked to Anthropic/OpenAI, flagging a serious vulnerability.
OpenAI and Anthropic aren’t worthwhile, and primarily, his take is that in the event that they go bust, it is unclear what Amazon will do with that capability.
Google and Amazon earnings calls reveal two very completely different AI funding mindsets
Google and Amazon weren’t at loggerheads on their respective earnings calls, however the distinction in how they view AI spending and money was powerful to overlook.
As an illustration, Google CFO Anat Ashkenazi usually spoke about self-discipline, explaining that in evaluating investments, the tech big firm makes use of a “highly rigorous framework” that weighs “the cash flow generation, the health of our financials, and the balance sheet,” reported Investing.com.
The corporate’s administration designed final yr’s huge capex and the bigger 2026 “envelope” to make the corporate really feel snug from a cash-flow standpoint.
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CEO Sundar Pichai bolstered that confidence. “We are seeing our AI investments and infrastructure drive revenue and growth across the board,” he mentioned, including that the growth is backed by robust, supply-constrained demand.
Amazon’s tone was remarkably completely different, nevertheless.
CEO Andy Jassy frolicked defending the eCommerce pioneer’s $200 billion capex plan, touting AWS’s 24% year-over-year progress on a “$142 billion annualized run rate.”
- In This autumn 2025, Synergy Analysis estimated that AWS held 28% of world cloud infrastructure spend, in comparison with Microsoft Azure at 21% and Google Cloud at 15%.
- In This autumn 2025, AWS income grew 24% yr over yr, Google Cloud grew 48% yr over yr, and Microsoft Azure grew 39% yr over yr.
Jassy mentioned the spending is a vital wager, including that Amazon now has “a chance to build an even more meaningful business” and stressing that it’s already seeing super demand in these areas, regardless of being early within the piece.
In essence, Amazon primarily requested buyers to belief that the payoff continues to be forward.
Wall Avenue resets Amazon and Google inventory value targets after earnings
Amazon inventory:
- Financial institution of America (Justin Put up): $275 (minimize from $286), +30.8% upside
- Morgan Stanley (Brian Nowak): $300, +42.6% upside
- Goldman Sachs: $280 (minimize from $300), +33.1% upside
- Citigroup: $265 (minimize from $320), +26.0% upside
Sources: FxStreet, Investing, TipRanks, MarketScreener
Google inventory:
- JPMorgan (Doug Anmuth): $395 (raised from $385), +22.3% upside
- Goldman Sachs (Eric Sheridan): $400 (raised from $375), +23.9% upside
- Citigroup: $390 (raised from $350), +20.8% upside
- Financial institution of America: $370, +14.6% upside
Supply: TheStreet, Investing, TipRanks, MarketScreener
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