Amazon's AI Spending Dilemma: A $200 Billion Bet Hangs on AWS Earnings

Amazon shares fall 5.57% in seven-day slide as investors eye Q2 earnings; AWS growth and $200B AI capex raise concerns over cash burn and debt.

Amazon shares closed the week at €204.10 in Frankfurt, slipping 0.58 percent on Friday to cap a seven-day slide of 5.57 percent. The stock now sits 14.26 percent below its early-May peak of €238.05, with the Relative Strength Index at 38.2 — deep in oversold territory but showing no signs of a rebound. All eyes are on Thursday, when the company reports second-quarter earnings and investors will demand answers about the sustainability of its record-breaking capital expenditure program.

The tension is palpable. Amazon is on track to spend roughly $200 billion on AI infrastructure this year alone, a fourfold increase from prior years. That figure matches what Alphabet recently committed, and the market is bracing for Amazon to potentially raise its own guidance when executives take the earnings call. The broader industry picture is staggering: across the major cloud providers, capital spending is expected to reach approximately $725 billion in 2026, with leasing commitments from hyperscalers totaling an estimated $1.2 trillion — much of it tied to data centers still under construction.

AWS Growth Becomes the Make-or-Break Metric

The bull case for Amazon rests squarely on the cloud division. AWS revenue grew 28 percent to $37.6 billion in the first quarter, its fastest clip in 15 quarters, and analysts at Bank of America expect that pace to accelerate past 30 percent in Q2. KeyBanc’s Justin Patterson has penciled in 31 percent growth for both 2026 and 2027, while another analyst sees AWS expanding nearly 35 percent next year. Amazon’s custom Trainium chip business is already running at a $20 billion annual run rate, and commitments from AI labs are said to underwrite much of the planned capacity expansion.

The consensus estimates for the overall company stand at earnings per share of $1.85 on revenue of $200.31 billion. That would mark an improvement from Q1, when Amazon missed profit expectations with $1.61 per share but edged past the top-line forecast of $181.52 billion. Seth Klarman’s Baupost Group, which held Amazon as one of its largest positions as of March 31, has explicitly cited the 28 percent AWS growth rate as a key thesis.

The Flip Side: Cash Burn and Debt Accumulation

Yet the spending spree is taking a visible toll on the balance sheet. Morgan Stanley analysts project negative free cash flow of nearly $17 billion this year, directly attributable to the AI build-out, and Bank of America’s estimates are even more bearish. Amazon recently raised $25 billion in new debt to fund data center construction, and the company is now spending more on capital investments than it generates from operations — a gap that must be filled through capital markets.

Moody’s has warned that the “unprecedented” AI outlays could pressure the credit ratings of Amazon, Meta, and Alphabet. Amazon currently carries an A1 rating with a stable outlook, but the agency cautioned that downgrades are possible if high spending persists without corresponding cash flow generation. Alphabet already posted its first-ever negative free cash flow of $5.9 billion and raised its investment forecast to as much as $205 billion, triggering a brutal market reaction: on July 23 alone, the seven largest tech stocks collectively lost roughly $797 billion in market value.

Technical Signals and Analyst Targets

The chart tells a story of growing fragility. Amazon’s stock is trading 5.46 percent below its 50-day moving average of €215.89, though it remains 0.87 percent above the 200-day average. The 30-day annualized volatility of 29.85 percent underscores how sensitive the shares have become to new information. At the current level, the stock is 23.04 percent above its yearly low of €165.88, but the average analyst price target of $275.26 implies roughly 35 percent upside — suggesting the sell-side remains broadly constructive.

The valuation picture is mixed. Before the recent pullback, Amazon traded at $232.11 in New York with a price-to-earnings ratio of 27.5, which several models flagged as undervaluation. Regulatory risks and rising AI costs were cited as counterweights. The stock had delivered a 75.6 percent total return over three years.

Automation Plans Add Another Layer of Uncertainty

Beyond the earnings and spending debate, internal documents obtained by The Verge have stirred controversy. Amazon reportedly plans to automate 75 percent of its operations by 2033, eliminating more than 600,000 U.S. jobs and saving 30 cents per article. By 2027, some 160,000 roles could disappear, yielding $12.6 billion in savings. A company spokesperson said the documents reflect a single team’s perspective rather than corporate strategy, but economist Daron Acemoglu warned that Amazon risks becoming a net job destroyer.

Meanwhile, Amazon MGM Studios has halted production of a film about OpenAI CEO Sam Altman, following Amazon’s own multibillion-dollar investment in the AI company — a move that raises questions about creative independence within the studio.

The Binary Setup

Thursday’s report will likely determine which narrative prevails. If AWS margins hold steady and management can demonstrate firm customer commitments backing the massive outlays, the bull case — that the current dip is a buying opportunity — will gain traction. But if Amazon raises its investment guidance again without matching order growth, or if the cash flow deterioration proves steeper than anticipated, the bears will have the upper hand. A break below the 200-day moving average near €202 could open the door to further losses. For now, the market is holding its breath.