Key Points
-
Amazon and Alphabet are increasing their capital expenditure (capex) plans for 2023 amid concerns about AI infrastructure spending.
-
Alphabet plans to raise its capex to between $175 billion and $185 billion, up from $91.4 billion in 2022, while Amazon will increase its capex to $200 billion from $131.8 billion last year.
-
Analyst Nick Jones of BNP Paribas believes fears of overspending are overstated and has a price target of $390 for Alphabet and $320 for Amazon.
Both companies, significant players in the cloud computing market alongside Microsoft, are investing heavily in AI infrastructure to meet rising demand. Alphabet holds the No. 3 market share with its Google Cloud, while Amazon dominates the market with AWS. High-profile investor Michael Burry previously expressed concerns about the economic benefits of hyperscalers’ investments in AI technology, specifically regarding the short lifespan of AI chips.
Jones noted that Alphabet and Amazon’s backlog-to-capex ratios indicate that their spending is justified. Each company has developed custom AI ASIC chips and shown internal demand for their services, reducing the risk of overbuilding in their infrastructure.
