BREAKINGVIEWS-Amazon becomes an AI loser twice over

By Robert Cyran

NEW YORK, Feb 5 (Reuters Breakingviews) - Amazon.com AMZN.O started as an online book retailer. It has since expanded to almost everything else. Snag is, the $2.4 trillion firm carries a superstore discount. As fears that artificial intelligence will turn into a winner-take-all bloodbath for technology titans rise, boss Andy Jassy gets little credit from investors for his number-one spot in the cloud, or for growing in retail more quickly than Walmart WMT.O. It’s a bad position to be in when you’ve just promised to outspend all of your rivals.

On Thursday, Amazon said its retailing business grew quickly during the holiday quarter, with North American sales rising 10%, or about twice as fast as Walmart. Amazon’s operating margin is higher to boot, and both are growing about equally quickly overseas. Yet investors' valuation of Amazon’s enterprise as a multiple of anticipated EBITDA has fallen steadily over the past five years. It now trades at a 33% discount on that measure to Walmart, which is enjoying its status as a steady haven of sanity amid the profligate AI boom.

Amazon instead gets lumped in with Big Tech firms. After all, its cloud services business, AWS, provides a bit over half of its operating profit. As competition reaches a fever pitch, the unit is losing market share to rivals. Sure, it can still claim the top spot, and grew 24% year-over-year in the quarter. But Microsoft’s MSFT.O Azure unit grew 39% and Alphabet’s GOOGL.O Google Cloud 48%. As its fellow titans’ bets in AI deepen, this trend seems to be accelerating.

Playing defense is now incredibly capital intensive, with investors taking note. Microsoft saw its market value fall 10% when it said last week that it would spend far more than analysts anticipated to build out computing infrastructure for OpenAI and others. Even Alphabet’s stock fell slightly on Thursday after it pledged to double investment this year, despite an otherwise sterling quarter.

Amazon is outpacing both. It now foresees a whopping $200 billion of capital expenditures this year, a year-over-year increase of about 50%, or over $50 billion more than analysts had predicted, according to Visible Alpha. Amazon’s stock promptly sank 8% in aftermarket trading. It was already valued at a roughly 20% discount to Microsoft, and more for Alphabet.

This neither-fish-nor-fowl discount might dissipate over time. Walmart’s rising market value now looks overly optimistic. And the perception of which firm leads in AI, and the value of doing so, changes rapidly. If nervousness just keeps rising, though, shareholders may wonder whether keeping cloud computing and retail under the same roof is becoming too generous a buy-one-get-one-free offer.

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CONTEXT NEWS

Amazon.com on February 5 said that it generated $213 billion in revenue in the fourth quarter of 2025, an increase of 14% from the same period a year ago. The company earned $21.2 billion, or $1.95 a share, compared to $20 billion, or $1.86 per share last year.

Amazon plans to spend $200 billion on capital expenditure in 2026, compared to $132 billion last year.