Amazon Is Spending $200 Billion on AI Infrastructure. Here's What It Means for Investors.

The amount of money that the some companies are spending on artificial intelligence (AI) infrastructure is jaw-dropping. Amazon (NASDAQ: AMZN) is the biggest spender of all of them, and it plans to spend around $200 billion on capital expenditures in 2026 alone. That's more money than most companies will generate over several decades, let alone spend in one year.

However, this showcases the incredible demand for AI computing power, and Amazon wants to be a top option where AI models are built and run. It's spending major money to achieve this, but is this a wise strategy for Amazon? After all, that's a lot of money that could have been used elsewhere.

The AWS model requires major capital expenditures

Amazon Web Services (AWS) is Amazon's cloud computing platform. It operates on a simple principle: Build excess computing power and rent that out to clients. This has been a successful business model for about two decades, but it's entering a new era with the widespread use of generative AI.

There has never been another workload that requires as much computing power as AI does. So, Amazon is spending big to capture the opportunity. However, it isn't doing it on a blind hunch. In Amazon's annual shareholder letter, management pointed out that it has received several agreements to utilize the expanded computing capacity being built this year (and the years beyond that). So, Amazon already has future cash flows secured for the investment it's making.

Amazon believes the AI build-out is a "once-in-a-lifetime" opportunity, and the investments it is making now will be instrumental to rapidly growing its cash flows for years down the road. Amazon also pointed out that the faster AWS grows, the more investment it requires.

AWS is seeing strong growth, with its revenue rising 28% year over year in Q1. That was the fastest growth rate in nearly four years, and it is seeing success across regular workloads and AI, especially with its custom chip business, which grew at a triple-digit rate. AWS is executing at an incredibly high level, and that's a big deal for Amazon.

In Q1, 59% of Amazon's operating profits came from AWS. So, if AWS continues to grow at an outsize pace (it should, based on its investments), then Amazon's profits will also grow rapidly. This creates a flywheel effect and makes Amazon a great stock to buy now and hold over the long term.

Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.