Amazon’s stock dropped 8% to $204, surprising the market with a capex guidance of $200 billion. This marks the company’s highest among major tech firms. This significant capex focuses on AI-driven data centres for Amazon Web Services (AWS), surpassing Alphabet’s $180 billion forecast.
In Q4, AWS saw a revenue increase of 24% to $35.6 billion, though cloud margins shrank. Moreover, Amazon’s free cash flow fell from $38 billion to $11 billion, largely due to prior high capex spending. The market remains concerned about capex’s potential to lead to negative cash flow this year.
CEO Andy Jassy anticipates improved returns on invested capital from increased data centre investments. However, proximity to OpenAI poses risk, as competitors like Google’s Gemini gain ground. Nvidia reduced its OpenAI investment reflecting this trend.
Amazon’s proprietary chip offerings are also expected to generate higher demand. Despite the stock dropping below its 200-day moving average, it faces potential support at $197.85. Wall Street is cautious, with Amazon’s stock entering bear market territory, yet its performance remains better than Microsoft’s and Oracle’s. Analysts still estimate a price target of $275-$300, emphasising long-term AI leadership potentials.
With Amazon’s stock breaking its 200-day moving average and tumbling to $204, our immediate focus shifts to the downside. The startling $200 billion capital expenditure plan for this year completely alters the narrative around free cash flow, which we saw as a major strength throughout 2025. This massive spending, now the highest in the big-tech space, signals a period where cash burn will likely pressure the stock price further.
The 8% single-day drop has caused implied volatility in Amazon options to surge, likely reaching levels we haven’t seen since the market-wide corrections in early 2025. This makes buying options, like protective puts, more expensive than they were just a week ago. However, this higher volatility also means the premiums received for selling options are much more attractive now.
Given the clear break in trend, we should look at bearish strategies for the coming weeks. Buying puts with expiration dates in April or May makes sense, targeting the initial support level of $197.85 from last year. If that level breaks, puts with strike prices near the 2024 support of $177 could become profitable, as a prolonged sell-off seems likely.
For a more conservative approach that takes advantage of the high volatility, selling bear call spreads is a viable strategy. By selling a call option with a strike price well above the current market, perhaps at $220, and buying a higher one for protection, we can collect premium. This position profits if Amazon’s stock stays below that level, effectively betting that the massive capex news will cap any significant upside for at least the next quarter.
This spending spree is especially concerning when we see competitors making gains. Recent January 2026 developer surveys indicated that Google’s Gemini API usage grew nearly twice as fast as OpenAI’s, making Amazon’s close ties to OpenAI feel more like a risk. This aggressive investment might secure long-term AI dominance, but for now, the market is punishing the immense short-term cost.
