Amazon Raises Capex to $118 Billion Amid AI Cloud Arms Race

Amazon has increased its quarterly capital spending to $31.4 billion, setting an annualized pace of over $118 billion. This move escalates the competition with Microsoft and Alphabet to dominate AI infrastructure in the hyperscaler arms race.

Amazon (AMZN) has significantly increased its quarterly capital expenditures (capex) to $31.4 billion, setting an annualized pace of over $118 billion. This substantial investment marks a significant escalation in the company's push to dominate the AI infrastructure landscape, intensifying competition with Microsoft (MSFT) and Alphabet (GOOGL) in the hyperscaler arms race [1].

The tech giant's Q2 sales and profit figures exceeded Wall Street expectations, with revenue growing 13% year-over-year to $167.7 billion, and earnings per share (EPS) of $1.68, surpassing analysts' projections of $1.33 [1]. However, shares dipped 3.5% in after-hours trading, largely due to a cautious third-quarter operating profit forecast, which fell short of Wall Street's consensus [1].

Amazon's AWS cloud business, a key driver of AI innovation, saw revenue grow 17.5% year-over-year to $30.9 billion, outperforming analyst expectations of $30.817 billion [1]. This growth is fueled by the increasing demand for AI technologies, which are transforming various aspects of the company's operations and customer experiences.

The company's capital expenditures (capex) reached $32.18 billion in Q2, up 83% from the same quarter a year earlier, compared to analysts' forecasts of $26.36 billion [1]. This spending includes investments in AI infrastructure, data centers, and other cutting-edge technologies. Amazon's CEO, Andy Jassy, underscored the company's commitment to AI, stating that it is "starting to seep into many parts of the company’s business" and driving improvements in customer experiences, operational efficiency, and business growth [1].

This aggressive capex spending places Amazon in a strong position to compete with other tech giants for dominance in the AI infrastructure market. Microsoft and Alphabet are also investing heavily in AI infrastructure, with Microsoft planning to spend over $100 billion annually on data centers and AI by 2025 [2]. This intense competition is driving significant investments in AI data centers, with estimates suggesting that $475 billion will be spent on data centers globally in 2025, up 42% from 2024 [2].

In conclusion, Amazon's substantial increase in quarterly capex spending to $31.4 billion signals a significant escalation in the hyperscaler arms race, as the company seeks to dominate the AI infrastructure market. This investment is part of a broader trend of increased spending on AI data centers by tech companies and nation states, driven by the growing demand for AI technologies.

References:
[1] https://sherwood.news/markets/amazon-beats-on-q2-earnings-as-capex-goes-sky-high/
[2] https://ig.ft.com/ai-data-centres/