andy jassy said Amazon’s Huge spending on artificial intelligence is not something investors should fear. That’s why it always pays off over time.
“I believe AI is the biggest technology transformation of our lifetime,” the CEO said on “Mad Money.” “It’s going to reinvent every customer experience as we know it, and it’s going to reinvent something entirely new that we’ve never imagined.”
In February, Amazon announced plans to invest $200 billion in capital spending this year, primarily related to AI infrastructure. The stock price plummeted after it was disclosed along with the fourth quarter results. It took about two months for the stock to erase all of its post-earnings decline in early April. It has continued to rise ever since, setting a new record late Monday.
The crux of the debate over the stock is: Can Amazon generate meaningful returns from all this spending? Skeptics also note that Amazon is projected to have negative free cash flow in 2026, according to FactSet.
Jassy argues that the size of spending reflects the size of the opportunity. He pointed to the incredible pace of growth in its cloud division, Amazon Web Services, as evidence that the company is investing in the right places.
“In the first three years of this AI implementation, our utilization rate exceeded $15 billion, which is 260 times higher than the first three years of AWS,” he said. According to FactSet, AWS is expected to generate approximately $166 billion in total revenue this year.
“When you have a shift this important, you want to bet big,” added Jassy, who led Amazon’s cloud division before succeeding Jeff Bezos as company-wide CEO in 2021.
Jassy specifically cited cash flow concerns, saying critics misunderstand how Amazon is benefiting from these investments. “You need to have capital and cash in place in advance of when you can monetize it,” he said, explaining that investments in data centers and infrastructure are made years before they generate revenue.
But these assets have long useful lives of several years, allowing Amazon to generate profits over long periods of time, Jassy said.
“When revenue growth starts to catch up with capital expenditure growth, you actually start to like operating margins, free cash flow, and (return on invested capital) a lot. We’ve seen this movie before with the first wave of AWS…and I think the same story will play out, except the downstream revenue and free cash flow will be much higher,” Jassy said.
