<div id="readability-page-1">Given the stock's sizable price drop immediately following the announcement, it's clear that most investors aren't big fans of Amazon's (AMZN 0.39%) 2026 spending plans. The e-commerce giant said it plans to earmark $200 billion for capital expenditures, most of which will be allocated to Amazon Web Services, where the company's artificial intelligence (AI) business operates. For perspective on this figure, for the entirety of 2025, Amazon turned $717 billion into net income of $77.7 billion. Given this swell of impending outlays, shareholders' concerns are easy to understand. Just bear in mind there may be an even higher cost in not making this investment. The kicker: Amazon is one of the few players in the AI data center space that's actually achieving a respectable return on the money being invested in this infrastructure. <div><img width="880" height="587" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTU1NDkvd29ycmllZC1pbnZlc3Rvci1sb29raW5nLWF0LWNvbXB1dGVyLmpwZyZ3PTM4NDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTU1NDkvd29ycmllZC1pbnZlc3Rvci1sb29raW5nLWF0LWNvbXB1dGVyLmpwZyZ3PTM4NDA"/>Image source: Getty Images. </div> <h2>Amazon is losing market share</h2> Cutting straight to the chase, Amazon can't afford not to make this big investment in its cloud computing arm. As the graphic below illustrates, Amazon Web Services (AWS) continues to lose market share -- as measured by revenue -- to cloud computing rivals Microsoft (MSFT 0.16%) and Alphabet's (GOOG 1.10%) (GOOGL 1.06%) Google. Indeed, as of last quarter, AWS' share of the global business continued to deteriorate to a multiyear low of 28%. <div><img width="880" height="558" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTU1NDkvMDIwOTI2LWNsb3VkLW1hcmtldC1zaGFyZS5wbmcmdz0zODQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTU1NDkvMDIwOTI2LWNsb3VkLW1hcmtldC1zaGFyZS5wbmcmdz0zODQw"/>Data source: Synergy Research Group. Chart by author. </div> This doesn't mean Amazon is moving backwards on this front, to be clear. AWS' revenue improved nearly 24% year over year last quarter, inflating its operating income to the tune of 17%. It's growing less than its top two competitors are, though, while its profit margins are shrinking. This isn't a tenable trend investors are apt to tolerate for long. Something's going to have to change sooner than later. New-and-improved AI offerings are the company's best bet at winning back some of its recently lost cloud market share. <h2>Will the investment be worth it for Amazon?</h2> Here's the thing: Largely unlike Apple, Oracle, and the aforementioned Microsoft, investors have already seen Amazon achieve relatively quick and respectable returns on its investments in new artificial intelligence technology. Take its self-developed Trainium and Inferentia series of AI processing chips as an example. They're performance-competitive with Nvidia's hardware at a fraction of the price. Meanwhile, so-called Amazon Bedrock makes it easier for the company's cloud customers to build their own generative AI apps, including AI-powered customer service agents. Although Amazon generally doesn't offer much detail about such individual initiatives, CEO Andy Jassy did disclose during the recent fourth-quarter earnings conference call that &#34;Bedrock is now a multibillion-dollar annualized run rate business, and customer spend grew 60% quarter over quarter.&#34; The point is, while Amazon's current shareholders would certainly prefer the company not spend this much money on anything, it's not likely to be a bad investment. It will position the company to win at least its fair share of the AI data center market that Global Market Insights expects to grow at an average annualized pace of 35.5% through 2034. These capital expenditures may crimp profit margins, but that's a much better alternative than not keeping up with rivals' revenue growth.</div>

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Amazon plans to invest $200 billion in capital expenditures, primarily for its AI business within Amazon Web Services (AWS). Despite a stock price drop following the announcement, the investment is crucial as AWS is losing market share to competitors like Microsoft and Google. While AWS revenue grew 24% year-over-year, its market share fell to 28%. Amazon's AI initiatives, such as Trainium and Bedrock, have shown promising returns, suggesting that the investment could be beneficial in regaining market position in the rapidly growing AI data center market.

- Amazon plans to allocate $200 billion for 2026 capital expenditures, predominantly for its AI-driven Amazon Web Services (AWS), leading to investor apprehension after a recent stock price drop.  
- AWS is losing market share, now at a multiyear low of 28%, despite a nearly 24% increase in revenue year-over-year, indicating a need for innovative AI investments to regain competitiveness.  
- Amazon has previously shown strong returns on AI investments, with initiatives like Trainium and Bedrock, suggesting that the new spending could be crucial for sustaining growth in the rapidly expanding AI data center market.

The Catch-22 Behind Amazon's Big AI Spending Plans