Welcome to the Free edition of How They Make Money. Over 280,000 subscribers turn to us for business and investment insights. In case you missed it:
Amazon (AMZN) is no longer just providing the picks and shovels for the AI gold rush. It is now funding the whole mine. CEO Andy Jassy explained:
With Google announcing ~$180 billion in CapEx for FY26 on Wednesday, it was safe to expect Amazon to come out with an even bigger number. After all, Amazon doesn’t spend a penny on stock buybacks or dividends. As a result, the company can plow even more toward future growth. Amazon has the luxury of having a business that generated nearly $140 billion in operating cash flow in 2025 and has a stellar balance sheet. Funding this CapEx ramp is not a problem. That doesn’t change the fact that these numbers are truly staggering. The market is increasingly anxious about how these investments will play out, as their impact will take many years to materialize. Though, to be fair, the 'Day 1' company has earned the benefit of the doubt. But wait, there’s more! Reports surfaced last week that Andy Jassy is in advanced talks to lead a $50 billion investment in OpenAI. If finalized, this would be the largest single check to a private company in tech history, marking a definitive end to the Microsoft-OpenAI monogamy. It would represent half of OpenAI’s massive $100 billion round at a $830 billion valuation reported by The Wall Street Journal. The strategic logic is a two-fer for Jassy:
By funding OpenAI’s vision, Amazon ensures OpenAI has the capital to compete for the foreseeable future. But it doesn’t guarantee commercial success for Sam Altman & Co. When the bill comes due, OpenAI will still need a business that can spew tens of billions in profit to make it all worthwhile. Today at a glance:
1. Amazon Q4 FY25Income statement:
Revenue breakdown:
Cash flow:
Balance sheet:
Q1 FY26 Guidance:
So, what to make of all this?
2. Latest business moves📉 Project Dawn: The 30,000-Role RestructuringQ4 included roughly $1.8 billion in severance costs from the Project Dawn layoffs. In January, Amazon moved to aggressively flatten its corporate hierarchy, confirming a second wave of 16,000 job cuts. This brings the total reduction to roughly 30,000 corporate roles since October (~10% of the corporate workforce). Jassy is framing Project Dawn as a move to remove layers of middle management and bureaucracy to return to a “startup” culture. Management explicitly noted that efficiency gains from generative AI are allowing the company to operate with a smaller corporate headcount. 🏥 Amazon One Medical “Health AI” LaunchIn January, Amazon expanded its healthcare footprint by launching an agentic Health AI assistant within the One Medical app. The assistant is designed to handle agentic tasks like managing medications, explaining lab results, and booking appointments based on a patient’s specific medical history. This creates a tighter link between Amazon’s primary care services and its pharmacy delivery, aiming to make healthcare a frictionless part of the Prime ecosystem. 📢 Unified Ad StackAt the November 2025 “unBoxed” conference, Amazon officially merged its Demand Side Platform (DSP) and Sponsored Ads into a single, unified Campaign Manager. The update removes the friction between upper-funnel (streaming/display) and lower-funnel (search) ads, giving advertisers a holistic view of ROAS. A new AI-powered “Ads Agent” now allows marketers to query performance data using natural language, democratizing complex data analysis for smaller sellers. 3. Key quotes from the earnings callCheck out the earnings call transcript on Fiscal.ai here. Andy Jassy on AWS:
Jassy is refuting any market-share anxiety and has highlighted that AWS is adding more absolute dollars than rivals. He sees the current AI boom as a structural shift that justifies the massive CapEx ramp. On custom silicon:
The $10 billion milestone proves that Amazon’s vertical integration is a massive commercial reality. By offering a cost advantage, Amazon is creating a gravity well that makes it attractive for high-burn partners like OpenAI or Anthropic. The cheaper the compute, the stickier the ecosystem. On the barbelled AI market demand:
Jassy sees the AI labs as the immediate “anchor tenants” while waiting for the middle of the barbell (enterprise production workloads) to mature. On agentic shopping (Rufus):
If agentic commerce increases conversion by 60%, the massive AI spend starts to pay for itself through the retail flywheel. Rufus is a high-velocity sales closer. 4. What to watch moving forward☁️ AWS market share and marginsTotal cloud infrastructure market spending grew by 30% Y/Y to $119 billion in Q4 2025, the ninth consecutive quarter of accelerating growth. Synergy Research Group projects growth above 20% for the next 5 years, with enterprise cloud services, social media, and search expanding.
AWS had a commanding 28% market share, compared to 21% for Microsoft Azure and 14% for Google Cloud. What about margins? AI-driven CapEx and stock-based comp trimmed AWS margins by 2 points to 35%. Management had warned margins could fluctuate as AI investments flow through the P&L. AI is a short-term headwind on margin, but management expects the AI margin to match that of the non-AI business over time. 🛰️ Amazon Leo Pivot (formerly Kuiper)In recent months, Amazon’s satellite internet ambitions hit a regulatory bottleneck.
Jassy explained:
He’s pitching Leo as a specialized AWS feature rather than a consumer ISP. By bypassing the public internet, Amazon is creating a secure, space-based “private lane” for government and corporate data. 🧠 The Nova 2 & Nova Forge EraAmazon is moving beyond hosting models to pioneering “pre-training” as a service.
This is Amazon’s data moat. By building a Novella on AWS, an enterprise is anchoring its intellectual property to the Amazon ecosystem. 🏗️ The CapEx PayoffIn short, Big Tech is using all the cash generated by current operations to invest in AI. Even Microsoft’s CapEx was nearly $73 billion in the past six months and will likely be far ahead of Wall Street’s estimates. The chart below essentially shows the purchasing power of these giants. They can reinvest all of this into AI without raising external capital.
Amazon’s unique advantage has been its ‘Day 1’ posture, implying no buybacks or dividends. Every dollar is plowed into future growth. Now it’s possible the rest of Big Tech will adapt its capital allocation strategy to seize the moment. No one is as aggressive as Amazon right now. They have proven time and again that reinvesting in future growth is money well spent. With $200 billion lined up for FY26, the stakes and the potential rewards have never been higher. But it might be getting a little too hot, even for long-term-minded AMZN shareholders.
That’s it for today! Stay healthy and invest on! Want to sponsor this newsletter? Get in touch here.Thanks to Fiscal.ai for being our official data partner. Create your own charts and pull key metrics from 50,000+ companies directly on Fiscal.ai. Start an account for free and save 15% on paid plans with this link. Disclosure: I am long AMZN, GOOG, and META in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with members. Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views. I would love to hear your feedback! Reply to this email to reach out to me with questions or suggestions. If you enjoyed today's newsletter, please share it with your friends and family! You’ll earn rewards if they subscribe. You’re a free subscriber to How They Make Money. For the full experience, become a Premium subscriber.
|
Friday, February 6, 2026
☁️ Amazon: The $50B Kingmaker
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment