BNP Paribas Bullish on Alphabet and Amazon Amid AI Capex Skepticism

Alphabet and Amazon are facing investor scrutiny over aggressive capital expenditure (capex) plans for AI infrastructure, but BNP Paribas suggests the market is overreacting. While some investors, including Michael Burry, have questioned the economic viability and short lifespan of AI chips, analyst Nick Jones argues that the companies' backlog-to-capex ratios justify the spending to meet surging demand. Financial commitments for the year have scaled dramatically. Alphabet has projected capex between $175 billion and $185 billion, a significant jump from $91.4 billion in 2025. Amazon has pushed its spending even further, targeting $200 billion compared to $131.8 billion in the previous year. Although these announcements initially pressured share prices, Jones notes that revenue per employee metrics are climbing, indicating increased operational efficiency. A key driver for the bullish outlook is the development of custom AI application-specific integrated circuits (ASICs). Alphabet’s Tensor Processing Units (TPUs) and Amazon’s Trainium and Inferentia chips provide a structural cost advantage and better energy efficiency than generic GPUs. This vertical integration reduces the total cost of ownership and creates a competitive moat. Market momentum is already evident through strategic partnerships. Anthropic has placed a $21 billion TPU order via Broadcom for deployment through Google Cloud and has utilized a dedicated Amazon data center powered by Trainium chips. Based on these fundamentals, BNP Paribas has set price targets of $390 for Alphabet and $320 for Amazon, representing potential gains of 30% and 50%, respectively.