Amazon’s $128 Billion AI Bet: Five Realities From the 2025 Fiscal Year

Summary

• Amazon spent $128.3 billion on capital expenditures in 2025 , up from $77.7 billion the year before—nearly all of it directed at AI and cloud infrastructure ( Amazon 10-K Filing).
• A $15.2 billion swing in “Other Income” was driven by unrealized paper gains on Amazon’s $8 billion Anthropic investment—not by retail or cloud cash flow ( GeekWire).
• AWS hit $128.7 billion in annual revenue , growing 20% for the full year and accelerating to 24% in Q4 —its fastest clip in 13 quarters ( CNBC).
• Free cash flow dropped 71% , from $38.2 billion to $11.2 billion, as Amazon reinvested nearly every dollar of operating cash flow into physical infrastructure ( Amazon Q4 Earnings).
• Amazon guided 2026 capital spending at $200 billion —the largest single-company capex plan in corporate history, part of a hyperscaler spending wave that puts combined Big Tech infrastructure investment near $650–$700 billion for 2026 ( Bloomberg).

David L. Berkowitz

Chief Investment Officer and Financial Advisor

Nearly 40 years of experience — from trading and research at a $250 million hedge fund in the early 1990s, to two decades as a portfolio manager, to teaching thousands of executives and employees how to create shareholder value through EVA and value-based management. Now helping individuals and families become shareholders through disciplined investing, concentrated portfolios, and direct stock ownership.

Amazon’s fiscal year 2025 financials confirm a structural shift away from e-commerce as the company’s primary identity. The numbers describe a business channeling unprecedented sums into physical AI infrastructure. Total net sales reached $716.9 billion, up 12% from 2024, with Q4 revenue of $213.4 billion beating consensus estimates ( Amazon Earnings Release). But the headline growth figure masks a deliberate choice: Amazon traded short-term cash generation for long-term positioning in generative AI.

For shareholders, the key question is simple. Does spending $128 billion in a single year on data centers and chips represent disciplined capital allocation—or a bet so large that even Amazon’s balance sheet will strain under its weight?

Did Amazon Really Double Its Capital Spending in One Year?

Yes. Amazon’s purchases of property and equipment jumped from $77.7 billion in 2024 to $128.3 billion in 2025—a 65% increase in a single fiscal year ( ). The 10-K filing states that the company expects technology and infrastructure spending to continue rising and that this will weigh on short-term free cash flow as it adds capacity for AI and machine learning workloads.

The flagship physical project: Project Rainier , an $11 billion data center campus in New Carlisle, Indiana, built on 1,200 acres of former farmland near Lake Michigan. The facility houses roughly 500,000 of Amazon’s custom Trainium2 AI chips and exists primarily to train and run frontier models for Anthropic ( CNBC). Seven buildings were online by October 2025, with two more campuses under construction. At full build-out, the site will span 30 buildings and draw more than 2.2 gigawatts of electricity—enough to power 1.6 million homes.

Amazon then guided 2026 capital spending at $200 billion—a 53% increase over the record it just set. CEO Andy Jassy framed this as a “once-in-a-lifetime type of business opportunity” ( Seeking Alpha). That $200 billion figure is the largest single-company capital spending plan ever announced. For context, Alphabet guided 2026 capex at $175–$185 billion, Meta at $115–$135 billion, and Microsoft at roughly $80–$105 billion. Combined, hyperscaler infrastructure spending for 2026 approaches $650–$700 billion—a figure that would have been unthinkable two years ago.

Critical insight: This spending is not speculative R&D. It is concrete, steel, and silicon. Every dollar is allocated to physical assets with 15- to 30-year useful lives. Amazon is making a fixed bet that AI compute demand will justify infrastructure investments that cannot be easily unwound.

How Did the Anthropic Valuation Gain Distort Amazon’s Income?

“Other Income” swung from a $2.3 billion loss in 2024 to a $15.2 billion gain in 2025. The driver: an upward valuation adjustment on Amazon’s investment in Anthropic, PBC. Amazon invested a total of $8 billion in Anthropic, primarily through convertible notes. When Anthropic raised $13 billion in September 2025 at a $183 billion valuation, accounting rules forced Amazon to mark up its stake ( Bloomberg).

The Q3 2025 quarter alone booked a $9.5 billion pretax gain from this revaluation ( GeekWire). By Q4 2025, Amazon disclosed that its Anthropic stake had grown to $60.6 billion—a sevenfold increase from its $8 billion cost basis ( Business Insider).

These are non-cash, unrealized paper gains. They improved net income on the financial statements but generated no cash from retail or cloud operations. Amazon classified the convertible notes as “Level 3” assets—meaning their values rely on Amazon’s own assumptions rather than observable market prices.

Critical insight: Strip out the Anthropic mark-to-market adjustment, and Amazon’s net income improvement in 2025 looks materially different. The distinction matters when separating operational execution from accounting mechanics on venture-stage holdings. Anyone who remembers Amazon’s $12 billion Rivian gain in Q4 2021—followed by an $8 billion loss a few months later—knows how quickly these paper profits reverse.

What Did the Operational Realignment Actually Cost?

Amazon’s Q4 2025 operating income included three disclosed special charges: $1.1 billion for the resolution of tax disputes tied to its Italian stores business and a lawsuit settlement, $730 million in estimated severance costs, and $610 million in asset impairments primarily related to physical stores ( Amazon Earnings Release). Without these charges, Q4 operating income would have been $27.4 billion instead of the reported $25.0 billion.

The company also settled a high-profile FTC lawsuit. On September 25, 2025, Amazon agreed to pay $2.5 billion to resolve allegations that it used “dark patterns” to mislead consumers into enrolling in Prime and then made cancellation unreasonably difficult. The settlement included a $1 billion civil penalty—the largest in FTC rule-violation history—and $1.5 billion in consumer redress for an estimated 35 million affected customers ( FTC Press Release).

On the other side of the ledger, the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently reinstated 100% bonus depreciation for qualifying property placed in service after January 19, 2025 ( BDO Analysis). For a company deploying $128 billion into physical assets, the ability to expense infrastructure in the year it enters service materially reduces cash tax burden and partially offsets the contraction in free cash flow. Without that legislative change, the FCF decline would have been sharper.

Critical insight: Amazon simultaneously cut corporate headcount (laying off 14,000 in Q4 and another 16,000 earlier in the year), absorbed a record FTC settlement, and redirected the savings into AI infrastructure. The financial statements show a company willing to accept short-term friction in exchange for structural repositioning.

How Fast Is AWS Growing, and What’s Changing About Its Business Model?

AWS generated $128.7 billion in full-year 2025 revenue, growing approximately 20% while Amazon’s consolidated top line grew 12%. Q4 alone hit $35.6 billion—up 24% year-over-year, the fastest growth rate in 13 quarters ( TechCrunch). The annualized Q4 run rate: $142 billion.

AWS Quarterly Performance — 2025

The 10-K attributes the growth to increased customer use of core compute and storage, expanded machine-learning integration, and pricing changes tied to long-term customer contracts. That last point signals a shift toward an enterprise lock-in model: Amazon is offering volume discounts in exchange for multi-year commitments, trading near-term unit margins for revenue predictability and customer retention.

AWS’s backlog grew 40% year-over-year, and new contract signings in Q4 alone included OpenAI, Visa, the NBA, BlackRock, Salesforce, United Airlines, and DoorDash ( Amazon Earnings Release). Trainium and Graviton custom chips now carry a combined annual run rate exceeding $10 billion, growing at triple-digit percentages.

Critical insight: AWS produces 60%+ of Amazon’s total operating profit on roughly 17% of revenue. The growth reacceleration to 24% on a $142 billion run rate is the metric that justifies the $200 billion 2026 capex plan. If that growth rate decelerates, the spending thesis weakens fast.

What Does the International Growth Tell Us, and What’s Coming in 2026?

International sales grew 17% in Q4 2025 (11% excluding currency effects), while North America grew 10% ( ). That gap suggests Amazon’s logistics and cloud infrastructure outside the U.S. is gaining share faster than its domestic business. International operating margins remain thin—just 2.1% in Q4—but the trajectory is toward profitability after years of heavy investment.

For Q1 2026, Amazon guided revenue at $173.5 billion to $178.5 billion and flagged $1 billion in incremental year-over-year costs from Amazon Leo (Project Kuiper), its low-earth orbit satellite constellation. With 180 satellites launched and commercial service expected in 2026, Leo adds another multi-billion-dollar infrastructure bet on top of the AI buildout ( ).

Critical insight: Amazon is running two massive, capital-intensive infrastructure expansions simultaneously—AI compute and satellite broadband. Both require years of spending before generating meaningful returns. The operating income guidance for Q1 2026 ($16.5–$21.5 billion) disappointed analysts who expected $22 billion, and the stock dropped 10% after hours.

Regulatory Risk Remains the Open Variable

The $2.5 billion FTC Prime settlement resolved one front. But a separate FTC monopolization case against Amazon remains pending in the Western District of Washington ( National Law Review). The 2025 Risk Factors section of Amazon’s 10-K cites intensifying “gatekeeper” scrutiny, including price-fixing and monopolization claims across multiple jurisdictions.

Amazon deployed $128 billion into infrastructure in 2025 on the thesis that controlling AI hardware and models will define the next decade of the global economy. Whether regulators allow that concentration of physical and computational assets to keep scaling is the question the 10-K cannot answer. The EU’s Digital Markets Act, ongoing state attorney general actions, and the pending federal monopolization trial all represent structural uncertainty for a company whose growth strategy depends on scale advantages that regulators increasingly view as anti-competitive.

The Shareholder Framework: Five Questions That Matter

Amazon’s 2025 financials describe a company that has bet its balance sheet on a single premise: AI infrastructure will be the foundational utility of the global economy for the next two decades. The $128 billion spent last year and the $200 billion committed for 2026 represent the largest corporate capital deployment in history. For long-term shareholders, the calculus is straightforward. If AWS growth holds above 20% on a base that already exceeds $128 billion in annual revenue, the spending pays for itself. If growth slows materially while the concrete keeps pouring, free cash flow stays depressed, and the stock underperforms.

There is no middle ground in a bet this large. Amazon has chosen its path. The market’s job is to decide whether the price reflects the risk.

Endnotes

1. Amazon Q4 2025 Earnings Release (SEC Filing) – Official earnings release and financial data from Amazon’s fourth quarter and full fiscal year 2025.https://www.sec.gov/Archives/edgar/data/1018724/000101872426000002/amzn-20251231xex991.htm

2. CNBC: Amazon Opens $11 Billion AI Data Center Project Rainier in Indiana – In-depth reporting on Project Rainier’s construction, operations, and Anthropic partnership.https://www.cnbc.com/2025/10/29/amazon-opens-11-billion-ai-data-center-project-rainier-in-indiana.html

3. GeekWire: Amazon’s Anthropic Investment Boosts Quarterly Profits by $9.5B – Analysis of the Q3 2025 mark-to-market gain on Amazon’s Anthropic stake.https://www.geekwire.com/2025/amazons-anthropic-investment-boosts-its-quarterly-profits-by-9-5b/

4. Bloomberg: Alphabet, Amazon Stakes in Anthropic Boost Profit by Billions – Bloomberg reporting on Anthropic valuation impacts across major tech investors.https://www.bloomberg.com/news/articles/2025-10-31/alphabet-amazon-stakes-in-anthropic-boost-profit-by-billions

5. Business Insider: Amazon’s $8 Billion Anthropic Investment Balloons to $61 Billion – Reporting on the sevenfold increase in Amazon’s Anthropic stake valuation.https://dnyuz.com/2026/02/06/amazons-8-billion-anthropic-investment-balloons-to-61-billion/

6. FTC: Historic $2.5 Billion Settlement Against Amazon – Official FTC press release on the Prime enrollment and cancellation settlement.https://www.ftc.gov/news-events/news/press-releases/2025/09/ftc-secures-historic-25-billion-settlement-against-amazon

7. BDO: One Big Beautiful Bill Act Expands 100% Depreciation Expensing – Tax analysis of the OBBBA’s reinstatement of 100% accelerated depreciation.https://www.bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities

8. TechCrunch: AWS Revenue Continues to Soar as Cloud Demand Remains High – TechCrunch coverage of AWS Q4 2025 growth acceleration.https://techcrunch.com/2026/02/05/aws-revenue-continues-to-soar-as-cloud-demand-remains-high/

9. CNBC: AWS Q4 Earnings Report 2025 – CNBC analysis of AWS’s quarterly financial performance and competitive positioning.https://www.cnbc.com/2026/02/05/aws-q4-earnings-report-2025.html

10. Seeking Alpha: Amazon Targets $200B in Capital Expenditures – Earnings call highlights and capex guidance for 2026.https://seekingalpha.com/news/4548340-amazon-targets-200b-in-capital-expenditures-for-aws-and-signals-rapid-ai-driven-growth

11. Bloomberg: Amazon to Spend $200 Billion on AI Infrastructure – Bloomberg reporting on Amazon’s record 2026 capex forecast.https://www.bloomberg.com/news/articles/2026-02-05/amazon-boosts-spending-far-ahead-of-estimates-on-ai-build-out

12. National Law Review: FTC’s Landmark $2.5 Billion Amazon Settlement – Legal analysis of the settlement terms and pending monopolization case.https://natlawreview.com/article/ftcs-landmark-25-billion-amazon-settlement-highlights-ongoing-focus-dark-patterns

13. Fortune: Amazon to Pay $2.5 Billion in FTC Settlement – Fortune’s reporting on the settlement details and Amazon’s response.https://fortune.com/2025/09/25/amazon-ftc-settlement-prime-automatic-renewal-lina-khan-dark-patterns/

14. Digital Commerce 360: Amazon Accelerates AI and Data Center Spending – Comprehensive overview of Amazon’s infrastructure commitments.https://www.digitalcommerce360.com/2026/01/02/amazon-ai-data-center-multibillion-dollar-commitments/

15. Modern Retail: Amazon Set to Pass Walmart in Annual Revenue – Reporting on Amazon surpassing $700 billion in annual sales.https://www.modernretail.co/operations/amazon-set-to-pass-walmart-in-annual-revenue-for-the-first-time-after-hitting-700-billion-in-sales/

David Berkowitz CIO

I’m Berk — Investor, Educator, and Owner. For 40 years I’ve helped families think like owners and invest in great companies. Earlier in my career I was head trader for a $250 million hedge fund, advised Fortune 500 boards and C-level executives and taught 10,000 of their employees at multi-billion-dollar companies, and trained non-financial employees in value-based management.

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