The $200 Billion Bet
Why Amazon has the hardest ROIC story in tech, and what to do about it
Amazon reported arguably its best quarter ever. Yet shares are down almost 15% since the call. From Bloomberg:
Amazon.com Inc. shares dropped the most in six months after the company announced plans to spend $200 billion this year on data centers, chips and other equipment, worrying investors that its colossal bet on artificial intelligence may not pay off in the long run.
The market reaction is understandable. $200 billion is unprecedented. FCF will almost certainly go negative in 2026. Management didn’t communicate any guardrails when asked directly.
And ROIC is structurally harder for Amazon than Meta, Google, and even Microsoft. AWS runs at a 35% operating margin, but accounts for less than 20% of total revenue. The rest of revenue comes from retail at single-digit margins. So Amazon has to justify the biggest CapEx in corporate history through cloud margins alone.
On that front though, the market may be underappreciating the custom silicon story. Could Trainium lift AWS margins? And, should advertising revenue and margins be broken out to show how Trainium can directly impact non-retail margins?
For paid subscribers, we’ll dig into all of that and more:
How the custom silicon narrative shifted from defensive to confident in one quarter, and what the $10B chips ARR disclosure means
Why Amazon’s margin structure makes the ROIC story structurally harder than Meta or Google, and what Trainium has to deliver to close that gap
The CapEx escalation from Q3 to Q4. How $125B became $200B with no explicit guardrails
Where the sell side landed and why
Four things Amazon’s IR team should be telling investors, from Trainium margin quantification to the Graviton-agentic AI connection
Keep reading for institutional-grade work but with an independent perspective.