Amazon to Join Big Tech’s Spending Surge as AI Competition Intensifies, According to Reuters

By Deborah Mary Sophia

Amazon.com is set to announce a significant increase in capital spending on artificial intelligence, joining the ranks of Google and Microsoft. The tech giants are eager to leverage the rapid advancements in this burgeoning field.

According to data from LSEG, Amazon’s capital expenditures—primarily for developing cloud and generative AI infrastructure—are projected to rise 43% in the second quarter, reaching $16.41 billion. This marks an increase of approximately $1.5 billion compared to the previous quarter.

This surge in spending could pressure Amazon’s profit margins, as the costs may overshadow efficiencies gained from cost-cutting measures and supply chain improvements benefiting its retail operations.

While Amazon Web Services (AWS) has long held a dominant position in the cloud computing market, it faces increasing competition from Microsoft, especially after Microsoft introduced AI-driven services within its Azure platform. In response, Amazon has formed partnerships with companies like Anthropic and has provided startups with free credits for major AI models to enhance the adoption of its AI platform, Bedrock. Additionally, a new head was appointed for the AWS unit in May.

Earlier this month, Microsoft and Alphabet also committed to continued investments in AI, despite the slow returns that have not met some investors’ expectations. This sentiment has affected the stock prices of major tech firms, which have risen sharply this year on the back of AI hype.

Analyst Ben Barringer from Quilter Cheviot noted that Amazon’s capital expenditure will be under close examination, particularly as the company has been slower to embrace AI and is focusing on smaller firms struggling in the current high interest-rate climate. He added, "We would expect AWS to accelerate its AI development efforts moving forward."

Amazon’s stock has appreciated roughly 23% this year, although it has seen a decline of over 6% since July 8, when it reached an all-time high, coinciding with a broader market downturn affecting U.S. tech giants.

Growth for AWS is anticipated to remain stable at just over 17%, mirroring the previous quarter. Morgan Stanley analysts mentioned that "AWS needs to grow 18% or higher to reassure investors about its AI positioning and ability to maintain high-teens growth during this heavy capital expenditure phase."

Due to this increase in spending, Amazon’s gross profit margin growth is expected to slow to 1.3% for the April-June period, down from 2.6% in the preceding quarter and an average of 2.7% over the last two years.

In its North American retail segment, growth is likely to decelerate to 8% between April and June, sliding from 12.3% in the previous quarter. This slowdown comes amid broader signs of reduced consumer spending and competition from rapid-growing Chinese competitors like Temu and TikTok Shop, which are attracting more U.S. shoppers.

Overall, Amazon’s total revenue is projected to increase by 10.6% to $148.56 billion, marking the slowest growth in five quarters.