Amazon stock Faces AI Bubble Concerns as Investor Michael Burry Issues Warning
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Despite a strong Q3 performance, Amazon (NYSE: AMZN) stock has retreated from record highs amid growing anxieties over a potential bubble in artificial intelligence (AI) investments, with prominent investor Michael Burry leading the charge with stark warnings.
The recent surge in AI-related stocks, fueled by massive investments in infrastructure like Nvidia chips and new data centers, has prompted debate about whether these expenditures will translate into commensurate profits and productivity gains.A growing number of fund managers beleive the current valuations are unsustainable.
Michael Burry’s Dire Predictions
Michael Burry, renowned for his accurate prediction of the 2008 housing crisis, has voiced meaningful concerns about a potential AI investment bubble. He argues that the current enthusiasm and substantial capital spending are disconnected from underlying economic realities.
Burry’s analysis centers on both historical market patterns and specific financial issues related to the rapid expansion of AI infrastructure. He suggests that companies are artificially inflating short-term profits by extending the “useful life” of expensive AI hardware – such as Nvidia GPUs and data center equipment – from a typical 3-4 years to 5 or even 6 years on their balance sheets. this accounting maneuver, he contends, understates operating expenses.
He has also publicly criticized the revenue models within the AI sector, stating that “true end demand is ridiculously small.” Burry alleges that a significant portion of AI customer growth is being subsidized by the companies selling the AI services themselves, creating a self-reinforcing cycle.
Amazon’s own aggressive push into AI, was underscored by a recent $15 billion debt offering – the company’s first in three years – confirming the substantial costs associated with the AI build-out and raising concerns about future free cash flow.
Despite this heavy investment, Amazon CEO Andy Jassy emphasized during the Q3 earnings call that AI is “driving meaningful improvements in every corner of our business,” especially within AWS. The company is aggressively expanding its AI infrastructure, including its custom Trainium chips and data center capacity. This focus on investment contributed to a decline in trailing twelve-month free cash flow to $14.8 billion.
Q3 2025 Earnings Report: A Mixed Bag
Amazon reported strong Q3 results, with sales rising 13% year-over-year to $180.2 billion, exceeding Wall Street’s consensus forecast of $177.8 billion. Net income reached $21.2 billion, or $1.95 per diluted share, also surpassing estimates of $1.57. However, this figure was considerably boosted by a $9.5 billion pre-tax gain from Amazon’s investment in AI startup Anthropic, categorized as non-operating income.
Operating income came in at $17.4 billion, weighed down by $4.3 billion in special charges, including a $2.5 billion legal settlement with the Federal Trade Commission (FTC) and $1.8 billion in severance costs. Excluding these one-time charges,operating income would have been $21.7 billion.
Looking ahead to the fourth quarter, Amazon anticipates net sales between $206 billion and $213 billion, exceeding Street estimates. the company projects Q4 operating income between $21 billion and $26 billion, also above the consensus estimate of $23.8 billion.
AWS Growth Fueled by AI Demand
AWS experienced a healthy increase in operating income, reaching $11.4 billion, up from $10.4 billion in Q3 2024. This growth occurred despite ongoing capital expenditures aimed at expanding infrastructure to meet surging demand, particularly for AI-related workloads.
The resurgence is largely attributed to increased customer interest and spending on AI, with the shift toward generative AI applications beginning to translate into substantial revenue. According to Jassy, AWS is “growing at a pace we haven’t seen since 2022,” with the company adding more than 3.8 gigawatts of capacity in the past year.
Despite these positive indicators, Amazon’s momentum has been tempered by the broader AI sell-off, and burry’s warnings continue to weigh on investor sentiment.
