Key Points
In his annual letter to shareholders, Amazon CEO Andy Jassy said he does not see an artificial intelligence bubble.
Furthermore, Jassy said that Amazon has strong visibility into future cash flows from the capacity it is spending hundreds of billions on to install.
Jassy views AI as a “once-in-a-lifetime” opportunity.
Artificial intelligence (AI) stocks have struggled this year, not only because of the Iran War, but also due to waning sentiment toward the sector. The “Magnificent Seven,” which includes many of the hyperscalers driving the AI revolution, are collectively down this year. In fact, Microsoft just closed its worst quarter since 2008.
While the bears seem more prevalent, many of the bulls are still as confident as ever. One is Amazon(NASDAQ: AMZN) CEO Andy Jassy, and he just delivered bad news to the AI bears.
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Jassy doesn’t see a bubble
Jassy recently dropped his annual letter to shareholders, discussing what happened with the company in 2025 and other relevant market topics, such as AI. The main reason investors have been concerned about AI is that hyperscalers like Amazon are pouring hundreds of billions of dollars into building out the infrastructure needed to support AI.
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For instance, Amazon plans to spend roughly $200 billion in capital expenditures, most of which will go toward AI infrastructure. Investors have questioned how companies can make good returns on this level of massive investment. Jassy didn’t waste time beating around the bush, quickly going to bat for AI and the monumental effect it would likely have on Amazon:
I’ve followed the public debate on whether this technology is over-hyped, whether we’re in ‘a bubble,’ and if the margins and ROIC (return on invested capital) will be appealing. My strong conviction, at least for Amazon, is that the answers are no, no, and yes.
Jassy further said that Amazon is not committing this high level of investment “on a hunch.” The company expects much of what’s spent this year to be monetized in 2027 and 2028, with customer commitments for most of the capacity being added to Amazon Web Services (AWS). Jassy said that the company is willing to endure short-term headwinds to free cash flow for medium- to long-term gains.
Jassy also laid out several arguments, detailing why AI is not a bubble but a “once-in-a-lifetime opportunity.” For one, there has never been a technology adopted as quickly as AI, especially given the growth of AI chatbots like ChatGPT and the revenue run rates at OpenAI and Anthropic. AI adoption is happening 10 times faster than the adoption of electricity, Jassy said.
Jassy also pointed to AWS’s success. When AWS initially launched, it had a revenue run rate of $58 million. Three years into AI, AWS’s AI revenue run rate has exploded to over $15 billion. It could arguably be bigger if the company could bring on more capacity. Jassy said that AWS has been monetizing capacity as soon as it is installed.
There’s a lot that could go wrong, but also a lot that could go right
Investors are certainly right to be skeptical of AI. After all, the “Magnificent Seven” will likely spend close to $700 billion on AI-related investments. That number is so big that it’s simply hard to fathom. There are other concerns about AI, including circular financing in the industry and whether the world has the resources to support an industry that consumes so much power to run all the data needed to power AI.
However, investors should remember that the technology has demonstrated extraordinary capabilities, with immense potential to fundamentally disrupt nearly all aspects of society as we know it.
Investors should also remember that people like Jassy are among the most experienced and brightest minds in the world, and they wouldn’t be likely to be pouring this much money into AI if they didn’t have high conviction. Furthermore, Wall Street analysts are projecting strong earnings growth for companies like Amazon over the next few years.
It’s quite possible that AI is a once-in-a-lifetime opportunity, and the hyperscalers are right to spend heavily now and ask questions later. It’s hard to know the answer today, but investors should set aside their personal biases and always examine both sides of an investment thesis.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool has a disclosure policy.
