A Critical Voice Emerges on Amazon’s AI Spending Spree

The artificial intelligence boom is showing its first signs of strain, and one of its primary beneficiaries is now facing scrutiny. As Amazon continues directing billions toward AI infrastructure, a prominent market analyst has issued a surprising downgrade, questioning the fundamental economics of the technology and sending ripples across the tech sector.

This cautious assessment arrives during a period of heightened sensitivity for technology equities. Since reaching its peak in October, the Nasdaq 100 index has declined by 5.1%, erasing nearly $1.8 trillion in market value. Investors are growing increasingly apprehensive about the massive capital commitments being made toward artificial intelligence, particularly with return timelines remaining uncertain.

A Contrarian Stance from a Top Analyst

Breaking from the prevailing Wall Street consensus, Alexander Haissl of Redburn at Rothschild & Co has downgraded Amazon's stock from "Buy" to "Neutral." This marks his first rating reduction for the company in over three years and places him at odds with more than 90% of his peers, who maintain positive recommendations.

His rationale presents a stark challenge to the industry's dominant narrative. Haissl asserts that the profitability of generative AI is "significantly weaker than assumed." He specifically highlighted the capital-intensive nature of these ventures, noting that while cloud infrastructure was historically amortized over three years, AI projects now require 5 to 6 years, all while exhibiting weaker pricing power.

Should investors sell immediately? Or is it worth buying Amazon?

The "Overbuild" Warning and a Flawed Comparison

The analyst directly challenged the industry's favored analogy, stating that the sector's narrative to "'Trust us - Gen-AI is like the early cloud phase' appears increasingly misplaced." He warned of a potential "Overbuild" among technology giants, explaining that "Gen-AI is scaling on a bloated, inefficient stack, whereas Cloud 1.0 only scaled after efficiency improvements." This perspective casts doubt on the widespread expectation that AI investments will yield returns comparable to those seen in the initial cloud computing boom.

Amazon's Position: Operational Strength Meets Strategic Questions

Despite this critical outlook, Amazon's core operational performance continues to demonstrate resilience. Its cloud division, AWS, is still benefiting from steady corporate demand, and the company's share price has more than doubled since Haissl's original "Buy" rating in 2022. Nevertheless, the enormous capital expenditures dedicated to AI infrastructure are prompting serious questions about future profitability.

The pivotal issue for Amazon and other hyperscale cloud providers is whether they can successfully monetize their multi-billion-dollar AI investments in a timely manner. Haissl's skeptical view, which previously proved prescient regarding Oracle, suggests the sector may be approaching a critical inflection point. The coming quarters will test whether the current AI enthusiasm is justified or if the economics indeed fall short.