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While investors have been bullish on artificial intelligence (AI) stocks over the past few years, in recent times, they’ve started to worry about one thing in particular: the expense. The concern is that cloud companies could build too much capacity, and then be left with that extra infrastructure and the costs that come with it, if demand falters.
That risk, along with the high valuations of many growth stocks, has periodically weighed on AI shares. We saw a pullback amid these concerns in November, for example. So it’s not too strange that last week, when Amazon (NASDAQ: AMZN) announced its $200 billion capital spending plan by 2026, in part to address AI demand, shares immediately fell in premarket trading.
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But if you’re worried about Amazon’s AI spending, consider the following nine words from CEO Andy Jassy. They should ease your mind and even encourage you to enter Amazon stock.
First, let’s take a quick look at how Amazon fits into the AI story. You may know the company best for its e-commerce business, but Amazon is also present in the world of cloud computing. In fact, Amazon Web Services (AWS) is the world leader in this industry. Customers flock to AWS for a variety of services, but AI has driven growth in recent times.
AWS offers AI customers everything they need for their projects: from its in-house developed chips that appeal to cost-conscious customers to high-end chips from the market leader. Nvidia. AWS also sells access to a fully managed service, Amazon Bedrock, that allows customers to adapt popular large language models to their needs.
All of this has fueled tremendous growth at AWS. In the latest quarter, Amazon posted a $142 billion annualized revenue rate for AWS as the unit’s revenue soared 24%. This is the strongest growth rate in 13 quarters.
Now, consider Jassy’s words. “Customers really want AWS for core and AI workloads,” he said during the company’s earnings call.
The fact that customers are turning to AWS for both non-AI and AI projects suggests that even if demand for AI declines, Amazon could still generate growth through non-AI projects. That should put your mind at ease if you’re worried about a slowdown in AI growth.
Additionally, Jassy said that as the company adds a new capability, it is monetizing it immediately. All of this should reassure investors as Amazon begins this new wave of spending, as it shows that the company isn’t entirely dependent on AI demand and is quickly delivering returns on its investments.
