Amazon.com shares dropped approximately 2.3% to $258.73 Tuesday afternoon, underperforming broader market indices as investors trimmed positions in big tech ahead of Nvidia's earnings. The stock's market capitalization now stands at roughly $2.81 trillion, keeping the $3 trillion milestone within reach but no longer guaranteed.
The core issue for Amazon is no longer solely about its e-commerce dominance. Investors are increasingly focused on whether Amazon Web Services can translate massive AI investments into sustainable revenue growth before capital expenditures become a burden. AWS revenue jumped 28% to $37.6 billion in the first quarter, beating forecasts, while total net sales reached $181.5 billion. CEO Andy Jassy reaffirmed the company's commitment to a $200 billion AI investment target for this year.
Markets remained under pressure as the S&P 500 and Nasdaq both traded lower earlier in the day amid rising bond yields. Higher yields can increase borrowing costs for firms investing in AI data centers, a key growth driver for tech companies. According to the Associated Press, this dynamic is adding to investor caution.
Wall Street bulls found some support after Jefferies added Amazon to its “Franchise Picks” buy list, maintaining a $320 price target. Analyst Brent Thill noted that AWS is in the “early stages of a meaningful re-acceleration” as new capacity becomes available. Thill also argued that the market treats Amazon like a “mature retailer,” overlooking the potential from AI-powered AWS growth. Jesse Cohen, senior analyst at Investing.com, called AWS’s growth “the standout story.”
Alphabet kicked off its Google I/O conference on Tuesday with AI front and center. News of a Google and Blackstone AI cloud partnership weighed on some cloud-computing stocks ahead of the market open. Amazon’s cloud business now faces increasing pressure from Google, in addition to Microsoft Azure.
Nvidia remains the key test for the sector. According to Reuters, options pricing suggests traders are bracing for a $355 billion swing in Nvidia’s market capitalization following its earnings report on Wednesday. Traders are closely watching data-center demand, spending from hyperscalers, and margins. Matt Amberson at ORATS warned that some may be “complacent about AI/capex,” referring to capital spending.
Amazon is reportedly working on a new project tied to Nvidia, according to Business Insider. The internal AWS project, codenamed “Titus,” aims to revamp data centers to accommodate Nvidia’s top GPU systems. While Amazon has been promoting its own AI chip, Trainium, the company still appears to need significant investment in Nvidia hardware to remain competitive in the AI race.
The risks are clear. Amazon’s free cash flow dropped to $1.2 billion over the past 12 months from $25.9 billion a year earlier, driven by a surge in property and equipment spending, largely for AI investments. If demand weakens or costs for power, land, and chips outpace signed customer contracts, investors could quickly reassess AWS’s valuation.
Amazon will hold Prime Day in June this year, bringing the major sales event into the current quarter for shoppers across 26 countries. The company is also set to hold its virtual annual shareholder meeting on May 20 at 9:00 a.m. Pacific time. For now, the stock remains range-bound. Analysts remain positive on cloud and AI reacceleration, but the market is showing less willingness to pay upfront for years of data-center investment unless returns become clearer.
