Amazon Stock's Historic Losing Streak Continues Amid AI Spending Concerns
Amazon's stock has extended its downward trajectory, marking a significant milestone in its recent performance. On Friday, February 13, shares of the e-commerce and cloud giant fell by 0.4%, culminating in their ninth consecutive day of losses. This represents the longest daily losing streak for Amazon in nearly two decades, since a similar nine-day decline ended in July 2006.
Market Impact and Valuation Erosion
Over this nine-session stretch, Amazon's stock has plummeted by approximately 18%, erasing a staggering $463 billion in market valuation. The shares closed at their lowest level since May, highlighting the severity of the sell-off. For the month so far, Amazon shares are down about 17%, positioning them for their largest monthly percentage drop since April 2022 if this trend persists.
Root Cause: Capital Expenditure Guidance
The primary driver behind Amazon's stock decline appears to be the company's aggressive capital expenditure guidance. Earlier this month, Amazon announced in its fourth-quarter earnings report that it expects capital expenditures to reach $200 billion by 2026. This figure exceeded analysts' expectations by more than $50 billion, sparking investor anxiety. Much of this spending is earmarked for data centers, chips, and other equipment to support artificial intelligence initiatives.
Anthony Saglimbene, chief market strategist at Ameriprise, emphasized the concern in a statement to Bloomberg: "If Amazon is now spending so much that it has negative cash flow, that's a major concern and a red flag, and investors are increasingly viewing it as such."
Analyst Downgrades and Competitive Pressures
In response to these spending plans, analysts at DA Davidson downgraded Amazon's stock last week from a Buy Rating to Neutral. Their decision was influenced by worries over Amazon's capital expenditure, risks to its dominance in the cloud market, and the potential for AI to undermine its retail business. In a research note cited by CNBC, the analysts wrote, "With the context of results from Microsoft and Google, we see AWS continuing to lose its lead and now scrambling to catch up through escalating investment." They added, "We are also increasingly concerned about Amazon retail's transition to a new chat-driven internet dominated by Gemini and ChatGPT."
CEO's Defense of Spending Strategy
During the earnings call, Amazon CEO Andy Jassy addressed the rising capital expenditures with prepared remarks. He expressed confidence that the company's cloud unit would achieve a "strong return on invested capital," although he did not specify a timeline for this outcome. Jassy explained that the capital is necessary to meet "very high demand" for Amazon's AI compute, which requires expanded infrastructure like data centers, chips, and networking equipment. "This isn't some sort of quixotic, top-line grab," Jassy asserted. "We have confidence that these investments will yield strong returns on invested capital. We've done that with our core AWS business. I think that will very much be true here as well."
Broader Tech Sector Implications
Amazon is not alone in facing investor scrutiny over AI-related spending. The issue has also weighed on other tech giants, including Microsoft Corp. and Alphabet Inc. Collectively, the four largest spenders—Amazon, Alphabet, Microsoft, and Meta Platforms Inc.—have forecast capital expenditures of approximately $650 billion in 2026. Saglimbene noted, "If these big tech companies have negative or weaker cash flow on account of this spending, that's a dynamic shift in how they should be valued, especially if we go through a period of market stress or AI evolves in a way that they or the market is not anticipating."
This trend underscores a growing investor demand for Big Tech to demonstrate tangible returns from their massive AI investments, as concerns mount over cash flow and long-term valuation impacts.
