Amazon Sinks 10% After Earnings: $200B AI Spending Bombshell Overshadows Solid Q4

Amazon’s fourth-quarter earnings delivered a familiar but increasingly uncomfortable combination for investors: solid operational execution paired with a capital spending trajectory that the market is no longer willing to ignore. Shares fell roughly 10% in after-hours trading following the report, slicing through recent support and probing the psychologically important $200 level as investors digested a modest EPS miss, a massive upward reset to capital expenditure expectations, and a guidance outlook that failed to offset rising balance-sheet concerns.

At a headline level, Amazon beat on revenue but narrowly missed on earnings. The company reported Q4 net sales of $213.4 billion, ahead of consensus expectations of roughly $211.3 billion and representing 14% year-over-year growth. Diluted earnings per share came in at $1.95, just below estimates near $1.97, marking a technical miss that carried outsized weight given the broader backdrop of heightened scrutiny on mega-cap profitability and capital discipline. Net income rose to $21.2 billion from $20.0 billion a year ago, reflecting continued operating leverage but also highlighting how incremental growth is being absorbed by higher costs and reinvestment.

Segment performance was broadly constructive, led once again by Amazon Web Services. AWS posted Q4 revenue of $35.6 billion, up 24% year over year and comfortably ahead of Street expectations near $35.0 billion. Management emphasized that this marked AWS’s fastest growth rate in 13 quarters, reinforcing the narrative that cloud demand is reaccelerating after a prolonged digestion phase in 2023 and early 2024. Operating income in AWS reached $12.5 billion, underscoring the segment’s continued importance as Amazon’s primary profit engine.

That said, relative comparisons mattered. While AWS delivered a clear beat, it continues to lag peers in headline growth rates. Microsoft’s Azure reported growth near 39% in its most recent quarter, while Google Cloud posted growth approaching 48%, its fastest pace since 2021. Amazon remains the largest cloud provider by revenue and backlog, but the market is increasingly focused on growth differentials, particularly as capital intensity rises across the sector. Management pushed back on share-loss narratives, pointing to a growing backlog—now cited north of $240 billion—and rapid monetization of newly installed capacity, but investor skepticism remains.

Advertising was another bright spot. Amazon’s ads business generated $21.3 billion in Q4 revenue, up 22% year over year and modestly ahead of expectations. Advertising continues to serve as a high-margin offset to retail volatility and heavy infrastructure spending, with management highlighting improved conversion rates driven by AI-enabled tools and deeper integration across the shopping experience. In a quarter where concerns around agentic AI disrupting digital ad models have surfaced, Amazon framed its AI initiatives as additive, not cannibalistic, to advertising demand.

Retail performance was solid but unspectacular. North America segment revenue grew 10% year over year to $127.1 billion, while international revenue increased 17% to $50.7 billion, or roughly 11% excluding foreign exchange. Operating margins in North America improved meaningfully to approximately 9%, reflecting gains from regionalized fulfillment, automation, and logistics efficiency. International margins remained positive but modest, pressured by continued investment and competitive dynamics. Management acknowledged that tariffs have begun to “creep” into pricing on certain items, though the impact remains limited for now.

The dominant issue, however, was capital expenditures. Amazon stunned investors by guiding to approximately $200 billion in capital spending for 2026, far above prior expectations near $146 billion and representing roughly 54% year-over-year growth. For context, Amazon spent approximately $131 billion on capex in 2025. The magnitude of the increase places Amazon at the top of the mega-cap spending leaderboard, ahead of Google’s projected $180 billion, Meta’s $122 billion, and Microsoft’s $120 billion, contributing to a combined $622 billion in expected AI-driven capex across major technology platforms.

Management was unapologetic. CEO Andy Jassy emphasized that the majority of spending will flow into AWS infrastructure, custom silicon, data centers, and power capacity, citing “very high demand” for both core and AI workloads. He argued that Amazon is monetizing capacity as fast as it can bring it online and expressed confidence in long-term returns on invested capital. Still, investors focused on near-term consequences: trailing twelve-month free cash flow fell to just $11.2 billion, down sharply from $38.2 billion a year ago, as operating cash flow gains were overwhelmed by property and equipment purchases.

Guidance did little to soothe nerves. For Q1, Amazon expects net sales between $173.5 billion and $178.5 billion, roughly in line with consensus, but operating income guidance of $16.5 billion to $21.5 billion came in below expectations near $22 billion. The wide range, combined with rising depreciation and interest expense tied to capital investment, reinforced concerns that profitability visibility is deteriorating even as revenue momentum remains intact.

Compared to other mega-cap peers, Amazon now sits at the center of a growing investor debate around balance-sheet absorption and capital market capacity. With hundreds of billions in corporate debt and capex commitments coming down the pipeline across Big Tech, markets are increasingly sensitive to which companies can self-fund growth versus those that may lean more heavily on external financing. Amazon’s scale and diversification offer long-term advantages, but the timing mismatch between spending and returns is becoming harder for investors to tolerate.

In sum, Amazon’s Q4 report showcased a business firing on most operational cylinders—cloud growth accelerating, advertising scaling, retail margins improving—but the stock’s sharp decline reflects a market no longer willing to look past capital intensity. Until management can more clearly articulate when AI-driven spending translates into sustainably higher free cash flow and earnings growth, Amazon risks remaining a high-quality company with a challenged near-term equity narrative.