Amazon’s ‘Hold My Beer’ Moment

On the Feb. 9 episode of The Morning Filter, David Sekera and Susan Dziubinski dive into Big Tech earnings and discuss whether investors should worry about the exponential increase in capital expenditures planned for 2026. Here is an excerpt from the episode.

Can Google Keep Up With Its Capex Spending?

Dziubinski: All right, well, let’s move on to some new research from Morningstar. We’ll start with the earnings reports that came out last week from Big Tech, starting with Alphabet GOOGL. Now, the stock pulled back after earnings, and Morningstar held its fair value estimate at $340. So what did Morningstar think of the results?

Sekera: I mean, the results for fourth-quarter earnings, very strong revenue across the entire company, up 18%. Now, admittedly, operating margins did contract a little bit, by about 50 basis points, taking them down to 31.6%. But overall, I don’t think we’re concerned about the operating margin contraction, the little more expenses that they’re putting through. As far as like the AI buildout boom goes, I mean, revenue at Google Cloud accelerated. That’s at 48% growth. I mean, that’s grown enough now that the cloud is about 16% of the total revenue of the company.

I’d say it’s not just this quarter, but in fact, the past couple of quarters, I think the biggest takeaway here is that Google has successfully integrated AI within Google search. They’ve been using AI overviews, AI mode. That’s been able to really mitigate a lot of the competitive threats that people have been concerned about in the search business. And not only does it protect the search business, but it’s actually helped them improve their ad pricing. But at the end of the day, I don’t think anyone really cared about earnings. All about the AI capex guidance, and they certainly did not disappoint. They came out with their guidance for capex, $180 billion. That’s double what they spent in 2025. Takes them up to 38% of sales going to be spent on capex this year. And in fact, I think that was not only, not only didn’t disappoint, but I think that’s now causing some indigestion among investors. I think a lot of investors are really just trying to understand just how is Google going to be able to monetize that amount of spending over time and be able to generate returns at least in line with cost of equity? Just a giant number that they’re going to be spending this year.

Is Alphabet Stock a Buy?

Dziubinski: Yeah. Now, Alphabet’s been a stock that you recommended several times in 2025. It’s up about 68% during the past 12 months. So is it still a buy today?

Sekera: Not really. I mean, it’s at a 5% discount, really not that much margin of safety. It’s within that 3-star range. In this one, I think kind of that easy money that you talked about has already been made last year. However, I would certainly keep this one on a watchlist. So if we see this stock get pulled down, anytime the market sells off, with the volatility I expect this year, there will probably be better entry points ahead.

Amazon’s Staggering AI Spending Projection in 2026

Dziubinski: All right. Well, Amazon AMZN stock finished the week down 12% last week after reporting somewhat mixed results and a $200 billion capex forecast for 2026. Wow. So what did Morningstar think of those results, and any changes to the fair value estimate?

Sekera: Results were good. All segments came in slightly ahead of our forecast, but as you mentioned, no one cared. I mean, it’s all about the capex guidance. So before we get into Amazon, I just want to give listeners a little bit of background here. So if you remember last fall, Oracle ORCL, they announced that they wanted to transform their business into being an AI business, and they were going to spend $80 billion on capex. And then Microsoft MSFT, that looks like they’re spending about over $100 billion run rate on capex right now. We had Meta META when they came out with earnings, they said, we’re going to come out with, I think, the midpoint of their guidance was $125 billion of capex, and then Google comes out with $180 billion, so this point Amazon with their earnings, they came out and they’re just chuckling and went, “Yeah, hold my beer.” They announced $200 billion of capex spending this year. So again, let’s now put that in perspective. The total amount of capex for these five companies in 2024 was only $260 billion. So, I mean, at this point Amazon this year at $200 billion, it’s getting close to what those total of those five companies spent in 2024. Now, they increased that by $180 billion in 2025 and spent $440 billion. And now, when I look at these five companies, they’re guiding to over $700 billion of capex spending in 2026. That’s a $290 billion increase from 2025.

So I’d say generally for, I mean, the entire AI trade, these companies in particular, these dollar amounts are now getting to be so large that we’re at the point where I think investors are really starting to question whether or not the AI use case is going to allow these hyperscalers to be able to generate the returns that’s going to be needed in the years ahead to justify this amount of spending.

Is Amazon Stock a Buy?

Dziubinski: All right, well, let’s talk about Amazon’s fair value. Morningstar’s fair value is 260 right now. So Amazon does look like a buy, right?

Sekera: It does. It’s a 4-star-rated stock, trading at a 19% discount. I mean, everything is going right for this company right now, so it looks undervalued to us today.

Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts, and keep up with the latest research from hosts Susan Dziubinski and David Sekera on Morningstar.com.