Amazon Hikes AI Spending Target to $220 Billion Amid Rising Memory Costs

Amazon's capital expenditures have been on the rise, and it just announced a new AI spending target of $220 billion for 2026. This is a significant increase from its previous capex plan, which was set at $200 billion.

The company cited higher memory costs as a reason for the hike in spending. However, Amazon's increased expenditures are yielding tangible returns, with revenue growth outpacing capex growth. In the second quarter, the company delivered 20% year-over-year revenue growth, driven largely by its cloud platform, Amazon Web Services (AWS).

AWS has seen meaningful revenue growth acceleration as AI demand heats up. Its operating income surged from $10.2 billion in the prior-year period to $16.6 billion in Q2. CEO Andy Jassy touted how its AI and chips businesses have both exceeded $25 billion annual revenue run rates.

The high capital expenditures of Amazon are creating a barrier to entry for new cloud providers, making it challenging for them to gain market share. The company's insulation from competition is due in part to its comfortable lead over Microsoft and Google in the cloud industry, with more than 60% of the market controlled by these three tech giants.