Amazon CEO Andy Jassy has stated that investors should not be concerned about the company's substantial spending on artificial intelligence, arguing that it will drive long-term growth. Speaking on "Mad Money," Jassy emphasized that the large investments in AI infrastructure are necessary and will ultimately reward investors over time.
AI as a Major Technological Shift
Jassy described AI as a pivotal transformation in technology. "We believe that AI is the biggest technology transformation in our lifetimes," he said. "It's going to reinvent every single customer experience we know and altogether new ones we never imagined." He added that the scale of Amazon's investment reflects the magnitude of the opportunity.
Why Amazon Is Spending Heavily on AI
Earlier this year, Amazon announced plans to invest $200 billion in capital expenditure, primarily focused on AI infrastructure such as data centers. This announcement initially caused market concern, leading to a drop in share prices after the company's earnings report. However, the stock later recovered and reached new highs. Jassy explained that such spending is necessary when the opportunity is substantial. "When you have shifts that are this momentous ... you want to bet big," he said.
Jassy pointed to the rapid growth of Amazon Web Services (AWS) as evidence that the company's investments are paying off. "After the first three years of this incarnation of AI, our run rate is over $15 billion — 260 times what it was the first three years of AWS," he noted. AWS is expected to generate approximately $166 billion in revenue this year, highlighting the scale of Amazon's cloud operations.
Addressing Cash Flow Concerns
Some analysts have raised concerns that Amazon's heavy spending could impact its cash flow in the near term. Jassy countered that this view does not fully reflect how the company operates. "We have to lay out capital and cash in advance of when we can monetize it," he said. He explained that investments in infrastructure like data centers take time to generate returns but continue to produce revenue over many years.
Jassy stated that once revenue growth catches up with spending, the company's financial performance improves. "When your revenue growth starts to catch up with the capital expenditure growth, you actually end up really liking the operating margin, the free cash flow, and the [return on invested capital]," he said. He added that Amazon has seen a similar pattern before with AWS and expects the same outcome with AI, but at a much larger scale.
