Despite declining stock prices this year, both Amazon and Alphabet are significantly increasing their capital expenditures to meet rising demands in artificial intelligence (AI). In February, Alphabet revealed plans to ramp up its spending to between $175 billion and $185 billion, a substantial increase from $91.4 billion in 2025. Amazon is set to boost its capex from $131.8 billion to $200 billion this year.
Concerns about overspending on AI infrastructure persist, with investor skepticism surrounding the economic viability of such investments. Investor Michael Burry has raised doubts about the longevity of GPUs and AI chips, questioning the potential returns for companies like Amazon and Alphabet. Nevertheless, analysts such as Nick Jones from BNP Paribas maintain an optimistic view, citing that fears of overspending are exaggerated and that both companies are positioned well to benefit from the AI sector's growth.
Jones highlights that both firms' backlog-to-capex ratios suggest they are making strategic investments rather than overspending. He projects a price target of $390 for Alphabet and $320 for Amazon, indicating potential gains of approximately 30% and 50%, respectively, should these targets be met.