Amazon Shares Drop on AI Capex Worries, Confirming Market Fears

What happened

Amazon shares fell 8% in premarket trading after the company's capital expenditure plans heightened investor concerns over Big Tech's AI spending spree. The DeepValue report highlights that Amazon guided to approximately $200 billion in capex for 2026, focused on AI infrastructure, which has already tightened trailing twelve-month free cash flow to $11.2 billion from $38.2 billion year-over-year. Despite AWS sustaining 20% sales growth and generating $45.6 billion in operating income in 2025, the market narrative has shifted from AWS recovery to capex burden, as noted in the report. Accelerated depreciation from shortened server useful lives adds an estimated $0.6-0.7 billion drag on 2025 operating income, compounding margin pressures during this investment cycle. This sell-off underscores how near-term free cash flow optics and depreciation headwinds can overwhelm strong underlying performance, reinforcing the report's view that Amazon is now framed as an 'AI capex story.'

Implication

The immediate market reaction confirms that Amazon's valuation is now tightly linked to perceptions of AI spending efficiency, overriding even solid AWS growth metrics. For the stock to re-rate, Amazon must demonstrate over the next 1-2 quarters that new data center capacity is being utilized as fast as it comes online, sustaining AWS growth above 20% while managing depreciation headwinds. Key risks include persistent pricing offsets from long-term contracts, power grid delays affecting energization, and the accelerated depreciation that could further erode operating income. Monitoring management's commentary on backlog conversion and Trainium3 adoption will be crucial to assess whether the $200 billion capex plan yields expected returns. While the current dip may offer entry opportunities near the report's attractive level of $210, investors should size positions cautiously given the execution-dependent nature of the thesis and heightened market anxiety.

Thesis delta

The market's sharp response validates the DeepValue report's warning that capex optics could dominate sentiment, but it does not alter the fundamental investment case. The thesis remains a potential buy contingent on AWS growth sustaining above 20% with stable margins, yet increased investor anxiety suggests the stock price may remain depressed until tangible monetization evidence is provided in upcoming quarters.