Jim Cramer is urging Amazon investors to be patient and have faith in the cloud e-commerce company’s big spending strategy, despite the clear risks to its bottom line. “I completely believe,” Jim said on Friday’s “Squawk on the Street.” “(Amazon CEO Andy Jassy) knows how to do it, so I believe in that and I’m not going to push back on that.” Amazon shares fell 5.6% on Friday to $210 a share after management announced the previous night that the company’s 2026 capital spending target was $200 billion, compared to an expected $146.6 billion. The company also issued a lower-than-expected profit outlook for the current quarter. The team told investors on Thursday’s post-earnings conference call that the bulk of the spending will go toward Amazon Web Services infrastructure, AI capabilities and custom chips to support growing cloud demand. Jassy touted the company’s Trainium custom chips as a key pillar of AWS’ strategy to make AI workloads more affordable. He said there is “very strong demand” for Trainium 3 (the latest version) and that almost all supply is expected to be completed by the middle of this year. He added that customers have shown strong interest in Trainium4, which is already in development. Outside of spending and guidance, Amazon reported strong fourth-quarter results, with revenue and operating profit exceeding expectations. Amazon Web Services’ cloud growth accelerated to 24% year over year, the fastest pace in 13 quarters. “I don’t want to get too negative (about Amazon), just because it looks like there’s some inventory left,” Jeff Marks, the club’s portfolio director, said Friday. AWS backlog for the quarter reached $244 billion, an increase of 40% year-over-year and 22% sequentially. Marks also noted that the cloud division’s high margins tell investors that “there’s no wasted capacity and we’re running as efficiently as possible.” But Amazon’s higher-than-expected capital spending suggests it will have little cash flow in coming quarters. Looking at Amazon’s earnings report, the company had an estimated free cash flow of $37 billion in 2026, according to FactSet. Combined with the company’s $200 billion annual capital spending forecast, which is $50 billion higher than expected, the company’s free cash flow in 2026 looks virtually non-existent. Wall Street defines free cash flow as operating cash flow minus capital expenditures. To be sure, Amazon isn’t the only company increasing spending. Other tech giants, including Alphabet Inc. and Metaplatforms Inc., also plan to spend more than expected. However, Jim noted that investors are expecting clearer short-term returns from these AI investments, which Amazon has yet to fully demonstrate. This uncertainty led Wall Street firms to lower their price targets for Amazon. Wedbush lowered Amazon’s price target from $340 to $300. Cantor Fitzgerald lowered its target to $250 from $260. Prosecutor Davidson lowered his price target from $300 to $175, while downgrading the stock from Buy to Neutral. Aside from heavy capital spending, AWS has lagged behind Google Cloud, which has accelerated to 48% growth, and Microsoft’s Azure, which has grown 39% in its most recent revenue, prosecutor Davidson argued. Analysts agree that the law of large numbers contributes to the perceived slow growth rate of AWS compared to giant companies. The comparison is still biased “unfavorably” to AWS. The company also expressed concern that Amazon’s retail business could face “structural disadvantages” without deeper integration of AI platforms such as ChatGPT and Gemini. Analysts said they had expected Amazon to announce such an integration, but instead management focused on internal assistant Rufus and pushed back the timeline for joining the broader AI model. “It’s natural to want to use[Amazon]. It was such a shocking surprise that I think there’s a good chance it could end up in the $190 range,” Jim said. Amazon stock has fallen 12% over the past 12 months. Amazon’s strategy should ultimately pay off, but investors should expect more volatility in the near term. On Thursday evening after going to press, we reiterated our rating of 1, the equivalent of buy, but lowered our price target from $275 to $250 per share. on CNBC’s “Halftime Report” on Friday. Nvidia CEO Jensen Huang defended Big Tech’s surge in capital spending as “appropriate and sustainable.” Nvidia, whose chip is considered the gold standard in AI, is one of the main beneficiaries of that spending. We agree with Jensen. That’s why we rate another Clubchip stock, Broadcom, at 1 with a Buy rating. We believe in both Broadcom and Nvidia, even though they have both lost money this year due to market rotation away from the tech sector. Nvidia still remains as a Hold with a 2 rating. Amazon, Alphabet and others are buyers of Nvidia chips, but they’ve also emerged as competitors through their own custom chips. Asked in an interview with CNBC whether he considers custom chips like AWS’ Trainiums a threat, Jensen said he doesn’t. He said no other company can develop AI chips at the scale and quality that Nvidia can. (Jim Cramer’s charitable trusts are long: AMZN, GOOGL, MSFT, META. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
