Amazon (AMZN +1%) is seeing moderate gains today after reports revealed the company's plan to invest over $100 billion in data center infrastructure over the next decade. This massive investment underscores Amazon's commitment to AI, which requires specialized infrastructure. Some of these facilities are already costing upwards of $20 billion, significantly more than traditional data centers.
Amazon is not alone in this endeavor. Microsoft (MSFT, Financial), through its Azure business, spent about $30 billion last year on servers and buildings. The company is also planning to launch an AI supercomputer with a projected cost of $100 billion by 2028. As AI interest grows, so does the demand for new data centers, with construction and power companies noting a surge in investments both in the U.S. and internationally.
- In late March, reports indicated that Amazon (AMZN, Financial) was considering a $150 billion investment over 15 years in data centers focused on AI and cloud services. Given that CEO Andy Jassy previously led AWS for nearly two decades, these substantial investments aim to maintain Amazon's leadership in the cloud sector.
- The big question is whether these AI investments will yield attractive long-term returns. So far, AI has not shown a strong ROI. AWS reported a multi-billion dollar revenue run rate from AI, far below its total $100 billion run rate. Amazon's investments include $4 billion in Anthropic, an AI startup, as well as AI chips and infrastructure.
- AI is still in its experimental phase, making it challenging for organizations to fully commit. Accenture (ACN, Financial) is expanding its workforce to meet potential AI demand but notes that scaling AI is difficult due to the need for process changes, workforce reskilling, and new capabilities.
AWS has been a standout for Amazon (AMZN), boosting profitability and supporting quarterly results. This success likely fuels Amazon's confidence to dive into AI, despite its current lackluster returns. Similar to its aggressive expansion of its fulfillment network during the pandemic, which faced challenges later, AI investments could encounter short-term obstacles. However, Amazon is focused on long-term gains, aiming to lead in the AI space.
