Amazon (AMZN) reported its This fall earnings on February 5. The earnings spooked traders and despatched the inventory tumbling, which was already caught by the broader tech sell-off, buying and selling 9% decrease on the time of writing, Friday morning, Feb. 6, in line with Yahoo Finance.
What alarmed the traders was one thing Amazon President and CEO Andy Jassy mentioned within the earnings launch. “With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites, we expect to invest about $200 billion in capital expenditures [capex] across Amazon in 2026, and anticipate strong long-term return on invested capital.”
To know the total weight of the $200 billion in capex, we’ve got to take a look at 3 key issues:
- Amazon ended the interval with money, money equivalents, and restricted money of $90.1 billion.
- Web earnings for the total yr 2025 hit $77.7 billion, a rise of about 31%.
- In its Type 10-Ok, the corporate states: “As of December 31, 2025, we had long-term debt with a face value of $68.8 billion, including the current portion, primarily consisting of fixed rate unsecured senior notes.”
Even when we assume that internet earnings will develop on the identical fee, Amazon would wish to lift debt with the intention to hit that magic variety of $200 billion.
That is why traders are panicking.
Amazon CEO Andy Jassy mentioned he expects $200 billion capex in 2026.
Picture by Bloomberg on Getty Pictures
Financial institution of America lowers Amazon value goal
Following the report’s launch, Financial institution of America analysts Justin Publish and Steven McDermott up to date their view on Amazon inventory.
They famous that the corporate’s forecast of $200 billion in complete capex is effectively above Wall Avenue’s estimate of $148 billion.
Analysts raised income estimates for Q1 by $500 million to $177.4 billion, however lowered the working revenue estimate by $1.2 billion to $21.2 billion. In addition they modified their estimates for income, revenue, and GAAP EPS for 2026 to $812 billion, $100 billion, and $7.67, respectively, from $801 billion, $101 billion, and $7.75, respectively.
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Publish mentioned that whereas the capability ramp will add margin volatility in future quarters, he believes this capability will probably be absolutely utilized as a part of the AI enterprise transformation throughout industries, enabling Amazon to take care of competitiveness in a really enticing sector.
In a analysis notice shared with me, Publish reiterated a purchase score and lowered the goal value to $275 from $286, attributable to decrease AWS a number of reflecting extra potential margin uncertainty, and software program as a service sector a number of compression.
The goal value is based mostly on his sum-of-the-parts evaluation that values AWS at 8x 2027 gross sales, first-party retail at 1.0x, third-party retail at 2.5x, and promoting at 5.0x. Publish’s value goal implies 3.3 occasions blended value to gross sales ratio, 12 occasions 2027 EBITDA, and 29 occasions 2027 EPS.
Analysts famous draw back threat elements for Amazon:
- Growing competitors from offline and native retailers
- AWS consumer price optimization affect on revenues and margins
- Regulatory strain on the third-party market
In addition they famous that the inventory has been topic to heavy volatility previously, based mostly on margin traits, and that this volatility may enhance attributable to financial uncertainty.
Amazon is betting on Trainium and an enormous backlog, however there’s a catch
Amazon launched its large AI compute cluster, Challenge Rainier, in October 2025. The cluster consists of Amazon’s customized Trainium2 AI accelerator chips. The challenge was constructed for Anthropic, and the corporate is coaching its AI mannequin on it.
Through the earnings name, Jassy talked about it and mentioned the cluster consists of about 500,000 chips, including that the quantity will proceed to extend. Challenge Rainer is vital to learn about when contemplating Amazon’s backlog.
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In keeping with Jassy’s feedback in the course of the earnings name, Amazon’s backlog is at $244 billion. He didn’t specify what number of clients make up that backlog and which providers it entails, simply that it’s a mixture of AI and core AWS.
However since we all know concerning the large dimension of Rainer, it is extremely probably {that a} important a part of the backlog comes from Anthropic. There may be additionally numerous OpenAI in that backlog, for certain.
Amazon launched a brand new, improved model of its customized AI chips, Trainium3, in December.
Jassy mentioned in the course of the earnings name that the chip has simply began delivery. It’s speculated to be 40% extra value performant than Trainium2.
“We expect that nearly all of that supply will be committed by somewhere around the middle of this year, and we’re just in the process of building Trainium4,” he added.
The catch right here is that OpenAI and Anthropic have but to develop into worthwhile. If the vast majority of capex goes to constructing capability for the 2 unprofitable firms, they usually then go bust, what is going to Amazon do with that capability?
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