Why Amazon Must 'Keep Spending' on AI

Amazon's recent surge in capital expenditures, up 81% in Q3 2024, has raised eyebrows among investors. However, CEO Andy Jassy reassures shareholders that these investments, primarily tied to generative artificial intelligence (AI), will pay off in the long run. As an experienced investment consultant, I believe Amazon's aggressive AI spending strategy is justified, given the transformative potential of AI and the company's proven track record in driving profitability from high-investment sectors like cloud computing.

Amazon's AI investments, focused on data centers, networking gear, and hardware, are driven by the explosive popularity of generative AI technologies. The company is rushing to meet the vast demand for these technologies, with plans to spend $75 billion in 2024 and an even higher number in 2025. Jassy is confident that these investments will generate a successful return on invested capital, much like Amazon Web Services (AWS) did despite its high data center costs.


Amazon's cloud unit, AWS, has seen increased demand from businesses deploying generative AI models, leading to a 35% increase in sales. The company has also launched several AI products for enterprises, third-party sellers, and advertisers, further diversifying its revenue streams. Jassy expects generative AI to become a multi-billion-dollar revenue run rate within AWS, growing at a triple-digit year-over-year percentage.


To mitigate the potential risks and challenges associated with its aggressive AI investment strategy, Amazon must focus on several key areas. Diversification, risk management, talent acquisition and retention, regulatory compliance, and stakeholder communication are all crucial for ensuring the long-term success of Amazon's AI strategy.

In conclusion, Amazon's 'keep spending' approach to AI investments is a calculated risk that aligns with the company's long-term business goals. By leveraging the transformative power of AI and the success of its cloud computing business, Amazon is poised to drive growth and profitability despite the high capital expenditures. As an investment consultant, I encourage investors to monitor Amazon's AI investments closely and consider the potential long-term benefits of this strategic approach.