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Amazon (AMZN +1%) heads moderately higher today following a WSJ report that the e-commerce and cloud services behemoth aims to pour over $100 bln into data center infrastructure over the next decade. The move underpins a substantial bet on the future of AI as the technology requires its own physical infrastructure, with some facilities already topping $20 bln, well above what it costs to build existing data centers.

AMZN is not alone in its ambitious endeavor. For instance, Microsoft (MSFT), whose Azure business competes with Amazon AWS, spent around $30 bln last year on servers and buildings and reportedly plans to launch an AI supercomputer costing an eye-watering $100 bln by 2028. As the interest in AI proliferates, the demand for new data center construction has grown rapidly. Prominent construction and power companies have discussed the surge in data center investments across the U.S. and overseas.

• This is not the first time reports have swirled over AMZN allocating a substantial sum toward AI. In late March, Bloomberg reported that AMZN was looking to spend nearly $150 bln over the next 15 years on data centers, encompassing facilities geared toward AI and other cloud services. The sky-high numbers AMZN is committing toward maintaining its leading position in the cloud should also not come as too much of a surprise given that its CEO Andy Jassy was the former CEO of AWS for nearly two decades.
• With so much capital going into AI, the question now is whether it will produce attractive returns in the long run. Thus far, AI has not generated a compelling ROI, as AMZN commented last quarter that AWS achieved a multi-billion dollar revenue run rate on the AI front, vastly below AWS's total $100 bln run rate and a major shortfall given the billions AMZN has already invested. For instance, AMZN spent $4.0 bln on its stake in Anthropic, an AI startup, in addition to the AI chips and infrastructure.
• However, AI is still in the experimental phase, preventing organizations from aggressively pursuing the technology. While IT consulting giant Accenture (ACN) has begun bolstering its workforce to align with the potential explosion in AI demand, it has warned of a few hiccups, such as enterprises finding it challenging to scale AI due to it being a minor component of what is required, i.e., companies need to change processes, reskill its workforce, and build new capabilities.

AWS has been AMZN's standout segment over the past few quarters, bolstering its profitability and underpinning decent quarterly numbers. The strength of AWS likely provides AMZN with the confidence to move full throttle into AI despite it not yet producing much in the way of returns. Like its aggressive actions to expand its fulfillment network during the pandemic, which hit a wall a few years later, AI could hit some significant snags over the near term. Nevertheless, AMZN is building toward the long run, and in the hotly contested battle to become the leader in AI, AMZN's investments are a must.