Instant Reaction: Amazon Boosts Spending Far Ahead of Estimates

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1:27Carol Massar:IBM. JPMorgan Chase Bank N.A. Member FDIC. Copyright 2026. JPMorgan Chase and Company. Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. So this is for the fourth quarter, the look back. We're looking at EPS,$1.95, a share that's a penny light from what the street was expecting. Fourth quarter operating margin, that came in smack in line with what the street was forecasting, 11.7%. Here's to the outlook. Amazon sees first quarter net sales,$173.5 billion to$178.5 billion.

2:20Carol Massar:The estimate on the street, kind of in the middle of that,$175.54 billion. So maybe potentially it could be below that based on that range. Taking a look at shares of Amazon here in the aftermarket. Down by about 4.4%. We're now 3.9%. Bouncing around a little bit, but still lower by 2.5 % now. Yeah, they are definitely bouncing around. So let's see. Let's go through some more of the numbers. Yeah, the one that you hit that really sticks out, Carol, is first quarter net sales. That outlook sees net sales 173.5 to 178.5 billion. That's within estimates of 175.54 billion. Amazon sees first quarter operating income coming in.

2:59This is really light, 16.5 billion to 21.5 billion. The estimate was for 22.24 billion. So profit expected to take a hit, at least not looking like what analysts wanted to see. Again,$22.24 billion is what analysts wanted to see. First quarter operating income set to look$16.5 to$21.5 billion.

3:21Carol Massar:All right, let's continue with a look back there. Fourth quarter North American net sales,$127.08 billion. The estimate was slightly above that at$127.21 billion. You've seen this CapEx number? Now we're getting the good stuff. 2026 CapEx, about$200 billion. That way exceeds estimates. That estimate was for$146.11 billion. Shares moving lower in the after hours, now down by about 7%, 8%. All right. So we are seeing some pressure here. Hey, let's go through. There's more results. As we mentioned, net sales,$213.39 billion for the fourth quarter. The estimate on the street was$211.49 billion, according to Bloomberg Consensus.

4:05Carol Massar:Physical stores, let's actually go to online stores. Net sales,$82.99 billion. That's pretty much what the street was expecting. The estimate was$82.3 billion. AWS net sales,$35.58 billion was the quarterly results for the fourth quarter. Estimate was for$34.88 billion. So a little bit better than what the street was expecting. And let's go to, we saw the EPS. That was a penny light. Where else do you want to go? I want to go to some commentary. Amazon, I'm looking through the press release, sees 2026 CapEx. Again,$200 billion estimates of$146.11 billion. That's the headline. That's the story.

4:44We're going to stick to that one throughout the program. We are going to get additional details. For example, Amazon saying that demand is strong for AI, for chips, robotics, saying strong demand for its existing offerings. I'm looking through the press release right now.

4:58Carol Massar:Can I just say what's not strong is demand for their shares because that stock right now, Amazon shares are down about 9%, Tim, in the aftermarket. it. The company is saying that AWS growing 24%, our fastest growth in 13 quarters, advertising growing 22%, stores growing briskly across North America, international chips, business growing triple digit percentages year over year. This growth is happening because we're continuing to innovate at a rapid pace and identify a knockdown customer problems. This is a quote from Andy Jassy, president and CEO of the company. He says, quote, with such strong demand for our existing offerings and seminal opportunities like AI chips, robotics, and low-Earth orbit satellites, we expect to invest about$200 billion in capital expenditures across Amazon in 2026 and anticipate strong long-term return on invested capital.

5:45That$200 billion is not what investors were expecting. Again, investors were expecting $146.11 billion. That is a huge increase from those expectations.

5:56Carol Massar:Yeah, right now, shares of Amazon, they're down about 10, almost 11 % here in the aftermarket. So that CapEx line Just like we saw play out with Alphabet last night, a bit of a shocker. And certainly, initially, we have investors not liking that number. So again, Amazon's seeking now 11 % on that higher-than-expected 2026 CapEx forecast. We also mentioned that companies' forecast for the first quarter in terms of net sales, $173.5 to$178.5 billion. Street estimate was for$175.54 billion. So maybe a combination of potentially a lower mark when it comes to first quarter net sales, along with that higher CapEx, certainly creating some stress in terms of investors.

6:41Carol Massar:The share price now down about 10%, Tim, in the aftermarket. Looking through other highlights, I mean, this is a very long press release that goes through what the company has done over the last quarter. new agentic capabilities in AWS Transform, new agentic AI capabilities for Amazon Connect. It's an AI tool that the company says enables contact centers to provide consistent, personalized customer service experiences, AWS AI factories, fastest speeds ever for Prime members globally in 2025. Shares, though, still taking a hit in the after hours, down more than 10%. I also want to point out, in terms of the guidance that we're getting from Amazon, they are saying that the Amazon guidance assumes no additional restructurings.

7:20Carol Massar:Those restructurings, I guess you could go as far as to say whether or not there's more layoffs. Keep in mind, we just heard at the end of January that this company is cutting 16 ,000 corporate jobs worldwide in an effort to remove layers of bureaucracy and increase ownership. So we saw this company certainly announcing some movements, some restructuring. So we'll have to get some more clarity about what that means, what possible additional restructurings could be coming. We'll look for that on the call. Yeah, just looking at some updates here. 2026 capex again this is the story here this is the headline 200 billion dollars above the average estimate of 146.11 billion dollars all right let's get to it put them goyles with us she's senior analyst for e-commerce and athleisure for bloomberg intelligence she joins us from bi headquarters out there in princeton new jersey um punam investors not loving it is it all about that capex number you know it is but i think the capex number is fine we were looking for 140 billion dollars,$200 billion, just continues to show that they're investing.

8:20Wait, that's$60 billion more. That's a lot of money.

8:25Carol Massar:Yes, but they need to invest, right? We know that Amazon has to continue to invest in cloud services. It needs to invest in AI. So there's a lot of catch-up that needs to be done here. I think the long-run narrative here is still good. The underlying results were solid across both AWS and retail. Interesting. And so even though they talked about seeing first quarter net sales,$173.5 billion to$178.5 billion street estimate is kind of in the middle of that$175.54. That's okay. Yeah, that's okay. Like the results are good to okay. I think the numbers show that Amazon continues to plug away across its businesses and it is making progress.

9:07Carol Massar:And I mean, we're happy with those numbers. We think it's making the right investments. We think it's moving in the right direction. And we think it's growing profitably. The North America profit margins were better than expected. And AWS at 35 % is still respectable. Okay, so if we're not too concerned about the CapEx here, why are we seeing investors react like this, down as much as 10 % in the after hours, down as much as 11 % in the after hours? I think we'll have to see what they say on the call on where this CapEx is exactly going, what the backlog looks like. I think the call will give us a little more insight on to where they are investing, and that'll be important.

9:48Carol Massar:But I think expecting higher CapEx than what we had thought yesterday, especially after Alphabet's result, was what we were kind of expecting. So the reason Carol and I are fighting to get to ask you this question, because maybe we're going to the same place. So Andy Jassy, in his press release, in his comments, actually has two sentences here. And one of them does mention the$200 billion in CapEx. But he says there are seminal opportunities like AI chips, robotics, and low-Earth orbit satellites. Therefore, we expect to invest about$200 billion in CapEx across Amazon in 2026. Of those, AI chips, robotics, low-Earth orbit satellites, where do investors want to see the investment?

10:33Would they rather see them in AI and chips than in low-Earth orbit satellites? I mean, SpaceX kind of owns that.

10:39Carol Massar:I would agree with you there. I would like to see more on their core business rather than ancillary businesses. So one of the things that caught my attention, I'm thinking about the jobs that they are already cutting, those corporate jobs. We got that late January. Poonam, Amazon saying guidance that they put out assumes no additional restructurings. How do you, what's your read on that? Is it, yeah, I'm just curious. Is it more job cuts, other shifts? What's our takeaway there? I think you'll continue to see job cuts. I don't think we're over. You know, they've highlighted it pretty clearly in their shareholder letter last year that AI is going to allow them to pare back on jobs, especially when it comes to some of those jobs that can be automated in the distribution centers and the logistics and in the technology workspace.

11:27Carol Massar:So I don't think it's over. I think there's more to come. But I do think that they started and they're continuing to just push through what their original plans were for now. In terms of operating margin, 11.7 percent. So that was bang in line with what the street was expecting. They're managing costs. They're getting ahead of things. That was a good thing to see that they kept that margin? Yeah, it was actually really good. In fact, when I look at the margin composition and I look at the North America operating profit margin, which is largely retail, that was slightly ahead of expectations at 9%.

12:00Carol Massar:So that was encouraging to see their international margins that were okay. And AWS, once again, that's really where you get the margin from. 35 % was right in line with expectations. So I really think the quarter was in line to slightly better from an operating fundamental standpoint. I think CapEx obviously higher. We want to see where that investment is going, but hopefully they're making the investments and where they need to to grow both the AWS and the retail business. All right, just to recap, we've got shares of Amazon pairing their decline a little bit. The stock has been down as much as 11 % post-market, right now down about 7.5 % here.

12:37Carol Massar:Again, some of the headlines that we have highlighted on the Bloomberg, the company says 2026 CapEx, about 200 billion. The street estimate was$146.11 billion. See, his first quarter net sales, we've talked about this range,$173.5 billion to$178.5 billion. Street estimate is$175.54 billion. What else are you looking for? I mean, obviously, more clarity in terms of what we'll get on the call. But we were talking to Spencer Soper earlier, and he's like, there's just so much that comes out when you're dealing with Amazon. What other clarity are you looking for from this company? Or what other aspects?

13:13Carol Massar:Sure. I guess, number one, we discussed the CapEx, where it's going. Number two, the backlog on AWS. I think that would be an interesting point to look at. And on the retail side, they're doing a lot, whether it's Rufus, whether it's Alexa Plus. I'd love to hear how they're integrating AI into the workflow for consumers to just make that conversion much easier. And then what they're doing with OpenAI, right? We don't know. There was news earlier about a$10 billion potential investment. What does that mean? Where is that going? what does it do for Amazon? What is the actual end result here from that investment?

13:47What about advertising? The company calling out advertising growing 22%. Are we looking at that growth? Are we giving that enough credit?

13:57Carol Massar:I don't know if we're giving it enough credit, but what I would say is it's still 20 % plus growth is admirable for Amazon. We think that advertising is a segment that's sometimes overlooked as we get kind of caught up into AWS. I just say that for us, advertising is very important because it helps funnel the retail business. It's where you get the money to fund the retail business and the growth that you're having. It's pursue, especially when it comes to physical stores is grocery. It's high profit margin, higher than the cloud business. So clearly a very important vehicle for them as they move forward.

14:30Where are the opportunities for advertising? I mean, I finally did it. I said, yes,$3 a month because we want to watch The Night Manager without any ads. Those ads were really annoying me. And I did it. So I guess I'm part of the problem or I guess for Amazon, part of the solution. But where's the growth?

14:49Carol Massar:But there's just so much more, right? If you think about the retail platform, there's a lot of advertisement done just on the e-commerce aspect of the business. When you have Alexa Plus, when you have Rufus, they're embedding advertisement in all sorts of ways on the media side. Yes, you're one of the few people that is, you know, opting out for those ads, but there are still millions of people who want it ad-free. And therefore, you know, as they increase content, especially, and now they're increasing content using AI to help facilitate even faster content, there's just so much opportunity for advertising still.

15:23Carol Massar:Listen, I know this isn't your belly wick, but I just think about Microsoft, Alphabet, like all of these, these hyperscalers, you know, when it comes to the cloud and the AI spend, is there a takeaway for you on all of this as you kind of watch these numbers that have come out over the last week or so? And Alphabet, of course, was just last night. Yeah, I think the big question that I'm hearing everyone ask is, we continue to spend all this money, but what is the ROI on this CapEx? How do we kind of identify what the return is on the incremental investments that they're making, whether it's in chips, whether it's in other parts of the businesses?

15:57Carol Massar:help us understand how to kind of gauge that impact. All right. Great stuff, as always. Covered it all. Poonam, thank you, thank you. We'll be looking for your research. I know you're going to be working on it later on. It'll be on the Bloomberg. Poonam Goyal, she's Senior Analyst for E-Commerce and Athleisure for Bloomberg Intelligence out there at BI headquarters in Princeton, New Jersey. We're not done. We're going to stay on Amazon because we continue to see this stock. It's off its lows. It was down as much as 11 % here in the aftermarket. Now, Tim, just down about 7%. I want to bring in James Chokmok, partner and chief investment officer at Clockwise Capital.

16:30They've got about 70 million in assets under management. Also, they've got the Clockwise US Core Equity ETF, ticker is TIME. And Amazon is the third biggest holding in the fund, more than 5 % of the fund. James, with shares down 7.5%, are you buying more tomorrow? I don't think we'll be increasing our positions on increasing the size of any of our positions at this juncture, with the exception of the semiconductor space. You know, we see that the CapEx numbers continue to come in ahead of expectations across all the hyperscalers. And we think you just have to follow the money in this market. And, you know, we're equal weight roughly with the index with respect to Amazon.

17:17See no urgency in the grossing of Amazon or any other of the mega cap names. Are you concerned about the$200 billion that Amazon will spend this year? Obviously, it's a concern for them and for everybody else. I mean, we're living in a world now, in a market now where, you know, earnings, free cash flow, return on spend, all those things are important again. You know, just a couple of quarters ago, you couldn't spend enough and be rewarded for it. And now, you know, there's the market's kind of getting religion again as it relates to, you know, the financial performance and the financial expectations and projections for these companies.

17:59And, you know, it was bound to become relevant again at some point. And, you know, it really started last quarter with Broadcom in the month of December. And now you're seeing it percolate across all the companies reporting in January, February.

18:13Carol Massar:I want to ask you about what the details are that matter. And I'm looking at some other highlights from the press release from the last earnings. They announced, this is some of the highlights since the company's last earnings announcement include that Amazon announced new AWS agreements with OpenAI, Visa, the NBA, BlackRock, Perplexity, Lyft, United Airlines, DoorDash, Salesforce, U.S. Air Force, Adobe, Thomson Reuters, AT &T, S &P Global, National Bank of Canada, London Stock Exchange Group, Choice Hotels, Accenture, Indeed, HSBC, CrowdStrike, and more. The reason I went through the list is because I feel like, you know, we have this question, is it just about the hyperscalers spending and building out?

18:57Carol Massar:But what we're increasingly seeing, right, is more businesses tap into this. Can we make the assumption at this point, James, that these are businesses that are going to continue to have to spend with an Amazon or for that matter with an Alphabet? Absolutely. I think you have to make that assumption. I mean, the world is only going in one direction. Productivity is only going to grow and you need to leverage the infrastructure that these companies have built in order to achieve those goals and capitalize on those opportunities. That being said, you know, the money and the profits do matter. And we're going through a transition period right now where kind of growth assumptions are being revisited, valuation assumptions are being revisited.

19:52I mean, if you look at all the companies that have reported thus far, and a lot of them have traded down, I think Meta being kind of the main exception, estimation, estimates have gone up for the most part. However, I mean, Palantir is actually the poster child for this. Estimates came up materially. However, the stock has since fallen back a lot. And what that means is when estimates go up and the stock goes down, that means there's valuation compression. And you're seeing the market right now north of three times sales. Valuations are at or near all time highs. And, you know, they have to come in.

20:25And that's why You got to stay nimble. You got to stay hedged. And I don't think any of these companies are going to be immune with the exception of semiconductor companies, which are probably the only area of the market where you can likely see outperformance relative to expectations by the biggest margin on earnings versus other tech companies and other sectors. So when, you know, when when meta platforms was it he was meta earlier this. No, it was Alphabet yesterday. I'm losing track here, James. Thank you, Carol.

21:01Carol Massar:See, Matt Miller, I'm not the only one who forgets what date it is. When Alphabet, you know, when other companies report higher than expected CapEx, like Alphabet yesterday, you know, you see at least the knee-jerk reaction. You could see like a Broadcom moving higher, for example. Who's the beneficiary of this$200 billion? dollars? I mean, it's all the companies that you'd consider, you know, within the AI ecosystem from NVIDIA on down. But really, what we're focused on in terms of our holdings is where the scarcity is. You know, we think there's scarcity in two aspects of the semiconductor industry, and that's memory and manufacturing.

21:46You know, that's why we actually took up our Intel position today. You know, Micron continues to be one of our top holdings. And, you know, we follow, we think that the other areas of the semiconductor landscape will increasingly become commoditized over time. And that includes Nvidia, AMD and others. So we're focused on the areas of scarcity and we think those will continue to accrue a disproportionate amount of the benefits. But as far as where this CapEx spend goes, you know, I think it will be a rising tide slips all both situation. But who has the pricing power and the most material upside estimates?

22:22That's where our focus is.

22:23Carol Massar:We should point out shares of NVIDIA in the aftermarket are just up about one quarter of one percent. I'm going to look at something like a micron and that stock. Let me just pull it up here to see if there's any movement. It's actually down about one point three percent. Hey, one of the things I want to just ask you about, it's in the press release. Amazon writing that it introduced AWS AI factories to transform customers' existing data centers into high-performance AI environments, which accelerates AI build-outs by months or years compared to building independently. So it sounds like they've got a little service, like, you got a data center?