NextFin News - In a move that has sent ripples through the technology and investment sectors, Berkshire Hathaway has significantly reduced its exposure to Amazon.com, cutting its stake by more than 75% during the final quarter of Warren Buffett’s tenure as CEO. This divestment, occurring as the market processes Amazon’s ambitious $200 billion capital expenditure plan for 2026, highlights a growing divergence in how institutional investors value the future of the "Magnificent Seven" in an era of high-cost artificial intelligence (AI) development. According to Simply Wall St, the reduction in Berkshire’s position comes at a critical juncture where Amazon is balancing record-breaking infrastructure spending with a mounting list of regulatory and operational challenges.
The news of Berkshire’s exit follows a period of intense volatility for Amazon shares, which have experienced a 15.9% decline over the past 30 days as of February 18, 2026. While the company reported a strong 24% year-over-year revenue increase for Amazon Web Services (AWS) in the fourth quarter, reaching an annualized run rate of over $140 billion, the market’s focus has shifted from top-line growth to the sustainability of cash flows. The $200 billion spending target for 2026—a 53% increase from 2025’s $131 billion—is primarily earmarked for AI data centers, custom silicon like the Trainium2 chip, and the Project Kuiper satellite network. Simultaneously, the company is navigating a fresh tax investigation by Italian authorities and ongoing labor disputes at its Delta, B.C. warehouse in Canada, adding layers of legal and operational risk to its aggressive expansion strategy.
The timing of Berkshire’s retreat is particularly symbolic, marking a shift away from the "value" thesis that once brought Buffett to the stock. For years, Amazon was viewed as a dominant retail and cloud platform with a clear path to margin expansion. However, the current pivot toward AI infrastructure represents a return to a capital-intensive model that threatens to compress free cash flow in the near term. Analysts at JPMorgan have noted that the 2026 capex target is "well above expectations," suggesting a significant cash burn that could lead to negative free cash flow for the year. This creates a "prove-it" environment where management must demonstrate that the massive investment in GPUs and data centers will yield the same high-margin returns that the original AWS build-out provided a decade ago.
From a regulatory perspective, the Italian tax probe is symptomatic of a broader trend of European scrutiny that continues to plague U.S. tech giants. Under the administration of U.S. President Trump, trade and regulatory tensions have remained a focal point of international policy, and Amazon’s global footprint makes it a frequent target for local authorities seeking to capture a larger share of digital profits. These legal headwinds, combined with labor unrest in North America, suggest that Amazon’s path to profitability is no longer just a matter of technological execution, but also one of navigating a complex geopolitical and social landscape. The labor dispute in Canada, specifically, highlights the rising costs of maintaining a massive logistics network in an inflationary environment where worker leverage is increasing.
Despite these risks, the bull case for Amazon remains anchored in its technological moat. The company’s in-house AI chip business is already generating over $10 billion annually, providing a cost advantage over competitors who rely solely on third-party hardware. According to Intellectia AI, 92% of Wall Street analysts maintain a "Buy" rating on the stock, arguing that the current sell-off is a technical reset rather than a fundamental breakdown. They point to a $244 billion AWS backlog as evidence of durable demand. However, the divergence between Buffett’s cautious exit and the bullishness of growth-oriented funds suggests that the market is split on the "AI debt" risk—the possibility that the industry is overbuilding capacity before a clear monetization path for generative AI is fully established.
Looking ahead, the remainder of 2026 will be a litmus test for CEO Andy Jassy’s strategy. The market will be watching for two key indicators: the pace at which AI-related workloads translate into AWS margin expansion and the resolution of European regulatory cases. If Amazon can successfully navigate the "capital intensity crucible" without further diluting its balance sheet, it may emerge as the backbone of the AI era. However, if the returns on the $200 billion spend are deferred or diminished by regulatory fines and labor costs, the Berkshire exit may be remembered as a prescient warning of a structural shift in the tech sector’s profitability profile. For now, Amazon remains a high-conviction play for some and a source of liquidity for others, reflecting the profound uncertainty of the current technological transition.
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