Amazon’s AI Ambitions Face Scrutiny as Shares Retreat

Amazon's aggressive push into artificial intelligence is facing mounting skepticism from Wall Street, with the e-commerce giant erasing all its 2025 stock gains within just a few trading sessions. The dramatic reversal came after Rothschild & Co Redburn issued a stark assessment questioning the fundamental profitability of Amazon's multibillion-dollar AI investments, sending shares tumbling 4.4% on November 18 and pushing the stock into negative territory for the year.

The catalyst for the sell-off emerged when Rothschild analysts took the unusual step of downgrading Amazon from "Buy" to "Neutral." In a detailed research note that caught market participants' attention, analyst Alex Haissl expressed serious concerns about whether investors are dramatically overestimating returns from Amazon's substantial AI expenditures.

"We reluctantly downgrade Amazon and Microsoft," Haissl wrote, adding that "after thorough examination, we see no credible path back to the profitability levels seen during the early cloud era."

The critique strikes at the heart of Amazon's current growth strategy, with Haissl identifying three critical challenges:

• AI infrastructure demands $40 billion per gigawatt of capacity but generates only $10 billion in revenue
• Specialized AI chips require replacement every three years, far more frequently than traditional cloud hardware
• Amazon possesses limited pricing power relative to massive hardware expenses

From its early November peak of $254, Amazon stock has declined approximately 13%, reflecting growing investor apprehension.

Workforce Reductions Amid Technological Expansion

Adding to the apparent contradictions in Amazon's strategy, the company is conducting one of the largest restructurings in its history while simultaneously ramping up AI investments. During October, Amazon announced plans to eliminate 14,000 positions, with engineering roles accounting for nearly 40% of the reductions in key markets.

This creates a puzzling scenario: CEO Andy Jassy describes Amazon as aspiring to become "the world's largest startup" and has called the current AI generation "the most transformative technology since the internet." Yet the very developers tasked with bringing this vision to life are being laid off, particularly affecting the video game division, visual search teams, and advertising sales units.

Billion-Dollar Bond Issue Signals Commitment

Just one day before Rothschild's downgrade, Amazon demonstrated its determination to continue funding its AI ambitions by placing a $15 billion bond offering—its first U.S. dollar-denominated debt issuance in three years. Proceeds are earmarked for further AI infrastructure development, sending a clear message that the company remains committed to its strategic direction regardless of criticism.

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This financing followed Amazon's early November announcement of a substantial seven-year cloud agreement with OpenAI valued at $38 billion. The deal promises access to hundreds of thousands of Nvidia graphics processing units through Amazon's AWS infrastructure, news that initially added nearly $140 billion to Amazon's market capitalization.

However, that initial enthusiasm has faded as Amazon, alongside Microsoft, Meta, Alphabet, and Apple, faces scrutiny over estimated collective investment expenditures of $349 billion this year, with the majority flowing into artificial intelligence. The central question preoccupying investors remains: when will these massive outlays generate satisfactory returns?

Cloud Division Shows Strength Amid Questions

Amazon's cloud computing division, AWS, reported impressive third-quarter results with revenue climbing 20.2% to $33 billion—representing its fastest growth since 2022. CEO Jassy expressed strong optimism, highlighting robust demand for both AI and traditional cloud services.

Despite these positive results, Rothschild's Haissl maintains his skeptical stance, noting that while AWS accelerated "as expected," the potential for additional positive surprises appears limited. Unlike the high-margin cloud services of the first generation, AI workloads demand significantly more expensive infrastructure while potentially delivering lower returns.

Other market observers offer more optimistic assessments. Morgan Stanley analyst Brian Nowak believes AWS could achieve 25% growth in 2026, provided the adoption of AI technologies continues to accelerate—precisely the condition that remains uncertain.

Critical Juncture for Technology Sector

Amazon's situation reflects broader challenges facing the technology industry at this inflection point. While tech giants continue pouring billions into AI development, investors increasingly demand clear answers about when profitability will materialize and when returns will justify the enormous expenditures.

The next significant test arrives in late January 2026 with the release of fourth-quarter earnings. Market participants will closely scrutinize AWS growth metrics and, most importantly, management commentary regarding AI profitability. Updated expenditure guidance for 2026 is also anticipated.

Until then, Amazon remains at the center of a Wall Street debate extending far beyond a single corporation: Will artificial intelligence deliver on its transformative promise, or will current enthusiasm eventually be remembered as the most expensive misconception in technology history?