Amazon Sounds Alarm Ahead of Earnings as Internal Reports Signal Serious AI Project Overspending

TradingKey - On the eve of Amazon's earnings release, multiple AI projects were reported to have out-of-control costs, prompting engineering executives to urgently sound the alarm.

According to a Financial Times report on July 30, several incidents of severe cost overruns occurred within Amazon due to employees deploying AI models. Most shockingly, one AI project's actual spending exceeded its original budget by as much as 860%, and it was only discovered five months later.

In response, Amazon stated that these cases only involved a few teams and do not represent the overall situation of the company's daily AI usage. However, the company's senior engineers have warned internal teams that while the cost of trial and error in traditional software architecture is usually negligibly cheap, introducing large language models (LLMs) and generative AI means that inefficient code can trigger massive computing power consumption, causing development costs to explode exponentially.

Recently, the massive AI capital expenditures of tech giants like Google and Tesla have triggered market anxiety, and Amazon's report undoubtedly puts already anxious investors on even higher alert. In its previous quarterly earnings report, Amazon provided guidance that shocked Wall Street, estimating that full-year capital expenditure in 2026 would reach as high as $200 billion. Amazon will release its Q2 earnings report after the market closes today, and whether it will further raise this figure has become a key focus for investors.

Since last Tuesday (July 21), Amazon's stock price has fallen for seven consecutive trading days, dropping from a high of $250 to a low of $226, representing a cumulative decline of around 10%. During pre-market trading today, Amazon rebounded by over 3%, with its stock price recovering to around $233, clawing back some of its losses. However, if the earnings report released after the close falls short of expectations, especially if AI capital expenditures climb further, its stock price will breach current support levels and continue to correct by around 10%, heading toward the February-March low of $200.

Amazon stock price chart, Source: TradingView