Key Points
The most significant challenge with stocks in the artificial intelligence (AI) space involves capital expenditures (capex). Some of the top tech companies plan to spend over $100 billion each on capex in 2026 after investing massive amounts into it last year.
Though companies such as Amazon (NASDAQ: AMZN) or Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) hold massive liquidity positions, even the largest tech giants are not immune to investors’ concerns about the size of their outlays.
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Fortunately for AI stock bulls, it appears the market has probably overreacted to the rapidly rising levels of capex spending, and here’s why.
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What massive capex spending means
Without a doubt, many of tech’s top companies are in a sort of arms race to become leaders in AI. Grand View Research forecasts a compound annual growth rate (CAGR) in this industry of 31% through 2033, which would take the value of the industry from around $391 billion in 2025 to almost $3.5 trillion by 2033. Meanwhile, Statista forecasts that AI infrastructure spending could triple by 2029.
Perhaps no company has spent more on its efforts to capitalize on this opportunity than Amazon. It plans to allocate $200 billion this year, and that comes after it spent $132 billion in 2025.
However, despite those massive outlays, Amazon’s financial position has improved. That goes beyond the 12% rise in revenue, which included a 20% revenue increase for its cloud computing arm, Amazon Web Services (AWS).
During 2025, its free cash flow was $11 billion, falling from $38 billion in 2024. Still, investors should remember that the calculation for free cash flow subtracts out capex, so Amazon continues to generate free cash despite its huge spending.
Moreover, Amazon’s book value rose to $411 billion in 2025, up from $286 billion the previous year. That implies that its spending has paid off.
Alphabet is in a similar situation. It plans between $175 billion and $185 billion in capex this year, up from $91 billion in 2025. Amid that investment, its 2025 revenue grew by 18%, including a 48% revenue increase for Google Cloud, implying its capex spending helped it serve more customers.
Also, despite the massive capex spending, the Google parent generated $73.3 billion in free cash flow, a slight improvement over 2024’s number of $72.8 billion. Additionally, Alphabet’s book value is now $180 billion, up from $125 billion at the end of 2024. As with Amazon, the Alphabet example suggests that its large capex investment has made Alphabet wealthier, which validates the company’s decision.
Where investors go from here
Considering their balance sheet improvements, the higher capex spending suggests that investors should buy more of these stocks, particularly if the companies’ massive investments lead other investors to sell.
Admittedly, investors should not assume that heavy capex will necessarily improve a company’s financial condition. Still, in the cases of Amazon and Alphabet, their financials show that they have already begun seeing returns from these investments. That is likely why they are dramatically increasing their spending from 2025 levels.
With all this in mind, investors should not panic as capex spending rises. In fact, this trend could turn into a buying opportunity if such financial improvements occur amid an environment of falling stock prices.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.