Amazon is spending a huge amount this year
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After 26 years, the Italian stock market hit a new high
When looking at the ranking of the best-performing stock indices globally so far this year, it’s easy at first glance to overlook the Italian stock market, even though the FTSE MIB index has been gradually climbing higher over the past three years and, at the end of May this year, hit a new all-time high for the first time in about twenty-six years. The financial sector carries significant weight in the index; however, the top three best-performing components so far this year are not bank stocks, but rather the shares of a technology company, an energy company, and an industrial firm.
Europe's industrial sector is experiencing a surge in momentum
The rotation away from the U.S. technology sector is becoming increasingly pronounced, with Europe benefiting regionally and cyclical exposures—particularly the industrial segment—benefiting sectorally. Normalizing energy prices, improving growth prospects, a manufacturing sector that appears stronger than in previous periods, and German fiscal stimulus measures are all benefiting European industrial companies, and the iShares STOXX Europe 600 Industrial Goods & Services ETF (EXH4), which tracks these companies, reached a new all-time high yesterday, which we believe presents a favorable trading opportunity.
The dramatic deterioration in market sentiment in the beginning of the year hit large tech companies particularly hard, including Amazon, which is now being punished—rather than rewarded—by the market for its massive investments in artificial intelligence. More and more people are beginning to question the return on the $200 billion AI investment plan, but Amazon’s strong fundamentals and AWS’s performance do not yet indicate that the company has any profitability issues.
Quarterly Report
Given the shift in market sentiment seen in the beginning of the year, it comes as no surprise that investors have punished Amazon for spending a massive amount on artificial intelligence investments this year. Six months ago, the market would likely have reacted positively to the news that the company plans to spend $200 billion on investments by 2026; after the report, this has triggered a drop in the stock price of around 8 percent, as investors are increasingly questioning whether big tech companies will achieve adequate returns on these investments (See Google, Microsoft).
Of course, we’re not saying there are no risks when it comes to return on investment, but past experience shows that Amazon is quite capable of executing its plans and turning investments into profits; for example, it was the first to enter the cloud services market (AWS) and became the largest player there. According to the CEO, demand for AWS is so high that the company sells capacity as fast as it can deploy it.
In the final quarter of last year, AWS’s growth accelerated to 24%, a rate not seen in years and better than expected. In recent quarters, concerns had been raised that Microsoft and Google were growing much faster in this sector and that Amazon was falling behind; however, the current figures represent a significant acceleration compared to the previous quarter (Q3 2025: +19%), and of course, Amazon remains the largest cloud service provider. AWS’s operating margin remained around 35%, meaning that even though the company spends heavily on infrastructure development, this does not negatively impact its margins.
Amazon recently restructured its artificial intelligence division to accelerate the development of AI services. Peter DeSantis, who has worked at Amazon for nearly 30 years and was responsible for launching the company’s most important cloud-based services, has been appointed to lead the division. The goal is for the company to be able to deliver AI services and custom chips to customers more quickly under DeSantis’s leadership.
To offset the significant spending on AI, Amazon has carried out layoffs in other areas, primarily among office staff. The company announced further layoffs in January, bringing the total number of layoffs since October to approximately 30,000, which represents about 10% of the company’s office workforce.
The company is also streamlining its retail operations by closing smaller stores that do not generate high sales, while expanding the Whole Foods network and further improving logistics to strengthen same-day delivery services. In Q4 2025, North American retail revenue grew by 10% to $127 billion, while the operating margin improved to 9% in the segment (by more than 100 basis points). Advertising revenue rose by 22% to $12 billion.
In our view, Amazon will continue to lead the way in AI development and monetization, and despite the recent sharp decline in its stock price, we believe the company will be among the winners in the long run, so we are keeping it on our Equity Top Pick List.
Investment thesis
- AWS is a leader among major cloud service providers, and this quarter has once again demonstrated that it still has room to grow. The advertising segment also has significant potential for growth, and this business line could become a major profit driver thanks to its high margins.
- The rise of AI is still in its early stages, and we can expect even greater growth in this area in the coming years; Amazon is in one of the best positions to capitalize on this expansion. AWS already offers a platform that its customers can use to support their generative AI development efforts, for example.
- The retail sector is constantly seeking ways to improve efficiency, which could continue to have a positive impact on margins in the future. It may also benefit early on from the spread of automation through increased efficiency.
- Risks: Competition is extremely intense in the cloud computing sector and the field of artificial intelligence. It is not certain that Amazon will come out on top. It is unclear over what timeframe and with what returns the tens of billions of dollars the company is spending on AI investments will pay off. This is one reason why sentiment in the stock market was currently negative.
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