Amazon, and Qualcomm stocks sink following earnings, bitcoin plunges

Key Concepts

• AI-Driven Capex Surge: Both Amazon and Alphabet are significantly increasing capital expenditure (capex) to meet the growing demand for compute power driven by Artificial Intelligence (AI). Amazon’s forecast is $200 billion by 2026, while Alphabet’s is $180 billion.
• Compute as a Competitive Advantage: Access to sufficient compute power is becoming a critical “moat” for tech companies, enabling them to innovate and adapt quickly in the AI landscape.
• Successful DTC Brand Acquisitions: Alphabet (through e.l.f. Beauty) is demonstrating success with acquiring and nurturing Direct-to-Consumer (DTC) brands like Rhode (founded by Hailey Bieber) and Notorium, prioritizing retention of founding teams and disciplined product roadmaps.
• Diversification & Market Expansion: Qualcomm is diversifying beyond smartphones into automotive and data centers, while e.l.f. Beauty is expanding into underserved markets like rural areas through partnerships with Dollar General.
• Market Reaction vs. Long-Term Potential: Current market sell-offs in the tech sector are driven by investor scrutiny of AI investment returns, but underlying fundamentals remain strong for companies like Amazon and Alphabet.

Amazon’s Earnings & AI Investment

Amazon’s recent earnings report revealed strong AWS growth (24% vs. estimates of 21-22%), but the primary driver of stock decline was a significantly higher-than-expected capex forecast of $200 billion for 2026 – a 50% increase from 2025 and a 60% increase from 2024. This investment is largely attributed to the massive demand for compute power fueled by AI, with all hyperscalers aggressively investing to secure capacity. Analysts like Dan Ives emphasize that compute power is becoming a key competitive advantage. Past underinvestment in Nvidia GPUs by Amazon is cited as a lesson learned. Despite the high capex, analysts believe it’s justified to avoid underinvestment and maintain AWS margins.

Qualcomm’s Challenges & Strategy

Qualcomm is facing headwinds due to a 13-15% year-over-year decline in smartphone handset revenue and the ongoing memory chip shortage. However, the company is actively diversifying into new markets like automotive and data centers, and is considered undervalued. Angelo Cafe argues this diversification makes Qualcomm a potentially attractive investment.

e.l.f. Beauty’s Success & Acquisition Strategy

e.l.f. Beauty reported strong earnings with 38% net sales growth and 79% adjusted EBITDA growth. The Road brand, co-founded by Hailey Bieber, is experiencing exceptional growth, becoming Sephora’s biggest launch ever and exceeding expectations in the UK launch. Alphabet’s acquisition strategy involves retaining the entire founding team and providing support, a model proven successful with Rhode and Notorium. Rhode’s success is attributed to superior product quality, even with founder Haley Bieber’s significant social media following (56 million Instagram followers). The brand is expanding into hybrid makeup, accessories, and lifestyle products with a disciplined approach to product launches.

Alphabet’s Performance & AI Integration

Alphabet’s core business is experiencing strong growth, with color cosmetics consumption up 8% (double the category average) and ELF Skin consumption up 16% (also double the category average). The expansion into 11,000 Dollar General stores is proving successful, attracting new customers to cosmetics. Alphabet’s planned $180 billion capex is driven by demand for AI and cloud services, though capacity constraints are expected to persist. Gemini, Alphabet’s foundation suite of models, is driving growth in cloud and search, with 750 million monthly active users (MAUs) and 8 million paid Gemini Enterprise users. A partnership with Apple to leverage Gemini for their foundation models is a significant development. AI agents are currently writing approximately 50% of Google’s code, leading to productivity gains.

Waymo & Broader Tech Sell-Off

Waymo (Whimo) is a leading autonomous vehicle (AV) technology company, operating in six markets and expanding to potentially 20 US cities and international locations. The current tech sell-off is attributed to investor scrutiny of execution and returns on AI investments. Despite the sell-off, Alphabet has experienced 28 consecutive quarters of industry-leading growth.

Conclusion

The analysis reveals a significant trend of increased capital expenditure across the tech sector, driven by the insatiable demand for compute power to support AI development. While this investment is causing short-term market volatility, companies like Amazon and Alphabet appear well-positioned to capitalize on the long-term opportunities presented by AI. Successful DTC brand acquisitions, strategic diversification, and disciplined product roadmaps are also key themes, highlighting the importance of both innovation and operational excellence in navigating the evolving tech landscape.