Amazon just delivered something markets didn’t order. The company’s aggressive spending forecast jarred against the dominant risk-off mood and raises the question again of whether the artificial-intelligence trade is
going the way of the dot-com bubble.
CEO Andy Jassy must have had a sinking feeling ahead of Amazon’s earnings Thursday. After investors punished Alphabet’s capital expenditure forecast of up to $185 billion
this year, Amazon topped it with its own $200 billion capex projection. Protestations that big spending is justified by Amazon’s fastest growth rate in its cloud-computing unit for the past 13 quarters looked set to fall on deaf ears judging by the initial stock market reaction.
What started off as a mixed technology earnings season has turned into a rout. Even social-media company Meta Platforms, which was applauded for its AI-boosted results, has given up its post-earnings gains. There are
likely plenty of good software, legal, and financial stocks being unfairly punished for supposed AI disruption that will never come to fruition. But at a certain point traders reliant on borrowing are obliged to sell even good assets to cover their losses. The crypto sector is a particular point of vulnerability, with Bitcoin’s dramatic slide showing the amount of leverage in the system, from corporate holders such as Strategy to retail investors.
So what could stop the drop? Tech executives might back away from AI investments if things get bad enough. But CEOs are paid the big bucks to look toward the long term, so that seems some way off. However, relief could come from resumed interest-rate cuts by the Federal Reserve, which now appear more likely after layoff announcements soared in January.
The dot-com bubble didn’t burst until a series of rate increases from the Fed drove up borrowing costs. Amazon and its peers will have to hope the AI trade can avoid a similar fate and that investors warm to their unwanted gift of massive spending.
—Adam Clark
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Amazon Joins Crowd of Big AI Spenders. Jassy Sees Returns.
Not to be left out in the cold, Amazon.com is projecting capital spending reaching $200 billion this year. CEO Andy Jassy said there are seminal opportunities in things like artificial intelligence, chips, robotics, and low earth orbit satellites, and they anticipate a strong long-term return on invested capital.
- It’s just the latest tech company to project massive spending increases as everyone chases AI dominance. A day earlier, Alphabet revealed plans to double capital spending as it builds out its data centers and develops models. Amazon’s spending would be 60% more than last year.
- For the December quarter, Amazon reported adjusted earnings of $1.95 a share and revenue of $213 billion. That was a mixed report compared with Wall Street expectations. Revenue for Amazon’s closely watched cloud unit, AWS, was $35.6 billion, up 24% and beating expectations.
- Tech shares have been in a selloff this week as investors fret about data center spending outpacing revenue growth, though Amazon insists the demand is going to last and that it is selling data center capacity as quickly as it can make it available, supporting Jassy’s view on long-term returns.
- A counterweight to all this spending is cost cutting elsewhere in Amazon. It’s shutting its Fresh and Go grocery markets to focus on its Whole Foods division, and it’s trimming corporate jobs. The total number of layoffs since October has reached about 30,000.
What’s Next: Amazon said revenue for the current quarter would be between $173.5 billion and $178.5 billion, versus the
$175.6 billion average analyst estimate. On the earnings conference call with analysts, Jassy said the company would invest aggressively to build capacity as it sees the strong demand for AI workloads.
—Tae Kim and Liz Moyer
The Bitcoin Rout Continues. Crypto Firms Feel the Heat.
The rout in Bitcoin continued, with the biggest cryptocurrency falling to lows of around $60,000 early Friday, before rebounding above $65,000. That puts Bitcoin near a 15-month low, falling along with other riskier
assets such as tech stocks. Bitcoin has shed around half of its value after peaking over $126,000 last fall.
- Historic bear-market trends over the past 15 years say Bitcoin could fall to $38,000 this year, Stifel strategist Barry Bannister said in a note. That would be a 70% drop from its all-time high. Wenny Cai, chief
operating officer at SynFutures, says attention has shifted toward policy uncertainty.
- Strategy, which owns nearly 4% of the total Bitcoins currently in circulation, reported a per share loss on a generally-accepted accounting basis of $42.93 and revenue of $123 million. It was a mixed result compared with
expectations, and the company lost more than $6 billion in market cap Thursday.
- Bitcoin trades below the $76,052 average price Strategy says it paid for its 713,502 holdings, which were valued at around $46 billion as of Thursday’s market close. Strategy’s market-to-net asset value hovered around 1.10. An mNAV of 1
indicates the shares are valued equal to the holdings.
- Gemini Space Station, the crypto exchange founded by billionaire crypto investors Tyler and Cameron Winklevoss, disclosed it is cutting 25% of its workforce and winding down operations in the U.K., EU, and Australia, saying foreign markets have been hard to win.
What’s Next: Gemini said in a notice to customers that it would close accounts in those regions effective April 6. But starting March 5, customer accounts in those regions
will be in withdrawal-only mode, and creation of new accounts and incentive programs will be disabled.
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