Big Tech AI Overinvestment Era? Amazon Also Expected to Surge AI Spending in Q2

LSEG "Amazon Q2 Capital Expenditure Expected to Increase by 43%"

Following Google and Microsoft (MS), Amazon is also expected to have significantly increased its capital expenditures on artificial intelligence (AI).

According to market research firm LSEG on the 31st of last month (local time), Amazon's capital expenditures in the second quarter are estimated to have reached $16.41 billion, a 43% increase compared to the same period last year. This represents an increase of $1.5 billion from the previous quarter. Most of the capital expenditures include costs for cloud and generative AI infrastructure development.

The reason for this sharp increase in capital expenditures lies in Amazon's fierce and costly competition with MS in the cloud computing market. After MS launched AI-based cloud services, Amazon collaborated with UK AI startup Anthropic and others to increase the market share of its AI platform 'Bedrock' through free services.

Due to the increase in Amazon's AI-related capital expenditures, the gross margin for the second quarter is analyzed to have slowed to 1.3%, down from 2.6% in the previous quarter.

Amazon is scheduled to release its second-quarter earnings after the market closes on August 1.

Recently, the market has interpreted the AI-related capital expenditures of MS and Alphabet, which released their second-quarter earnings ahead of Amazon, as excessive relative to demand among big tech companies. Accordingly, MS and Alphabet saw their stock prices fall by 5% and 1%, respectively, on the day of their second-quarter earnings announcements.

MS, which disclosed its second-quarter earnings on the 31st of last month, announced that its second-quarter capital expenditures reached $19 billion, an approximately 78% increase compared to the same period last year. According to MS, cloud and AI-related costs accounted for the majority of total capital expenditures. Alphabet (Google's parent company) also reported second-quarter capital expenditures of $13.2 billion, maintaining a year-over-year growth rate of 91%, consistent with the previous quarter.

Morgan Stanley analyst Joseph Moore stated in a client memo that "the market is viewing companies' capital expenditure plans for large-scale infrastructure only from a negative perspective," but added, "there is still a clear desire to continue investing resources in the development of multimodal generative AI."

This content was produced with the assistance of AI translation services.