Amazon's $200B Capex Plan Ends Stock Slump, Intensifying FCF Debate

What happened

Amazon's stock snapped its worst losing streak since 2006 after announcing plans to invest about $200 billion in capital expenditures for 2026, a significant jump from prior years. This surge targets AWS AI infrastructure to monetize a $244 billion revenue backlog, as detailed in recent SEC filings. However, the DeepValue report highlights that similar spending in 2025 compressed free cash flow to $11.2 billion, raising concerns about funding and profitability. Investors now face a critical test of whether operating cash flow growth can absorb this elevated spend without causing a multi-quarter funding shock. The market's relief may be temporary, as the next earnings reports will determine if AWS demand converts capacity into revenue amid rising depreciation and obsolescence risks.

Implication

The $200B capex plan reinforces Amazon's AI bet but elevates near-term free cash flow risks, with 2025's FCF compression to $11.2B serving as a cautionary benchmark. If AWS growth holds at 24% or higher, the investment could drive long-term value, yet any slowdown below 20% might trigger stock declines due to heightened depreciation from shortened asset lives. Balance sheet flexibility offers a cushion, but long-dated commitments of over $250B limit optionality to reduce spend if utilization falters. Quarterly results over the next 3-6 months will be pivotal, with FCF trends and AWS performance dictating whether this capex cycle is a timing issue or a structural drag. Ultimately, investors should position for high volatility, focusing on entry points near $185 if FCF stabilizes, while exiting if trailing FCF falls below $0B or net debt/EBITDA exceeds 1.0x.

Thesis delta

The confirmation of $200B in 2026 capex does not shift the core investment thesis but sharpens the execution risk, as it validates the high-spend narrative already priced into the stock. The key remains unchanged: AWS must convert its $244B backlog into revenue while operating cash flow grows to offset capex, avoiding prolonged FCF compression. Investors should maintain a POTENTIAL BUY stance but tighten monitoring, with the next 2 quarters critical for assessing whether the spend drives revenue acceleration or exacerbates funding concerns.