Amazon’s stock price closed higher on Tuesday, ending a previous streak of nine consecutive trading days of declines, marking its longest losing streak since July 2006. On Wednesday, the stock continued to rise by approximately 1.8%, closing at $204.79. Despite the rebound this week, the e-commerce and cloud computing giant Amazon (AMZN) still faces challenges at the start of the year. As of now, the stock has accumulated a decline of 9.2% over the past 12 months, significantly underperforming the Nasdaq Composite Index, which rose about 13% over the same period. Market concerns primarily stem from the company’s massive investment plans in the field of artificial intelligence (AI). Since the release of its financial results on February 5th, Amazon’s stock price has fallen by approximately 7.5% due to earnings falling short of expectations and worries sparked by large-scale AI capital expenditure plans.
According to company disclosures, capital expenditures are expected to rise to approximately $200 billion in 2026, far exceeding the $131.8 billion planned for 2025. Investors are generally concerned that tech giants, including Amazon, are pouring huge sums into AI infrastructure, but the returns on these investments may take time to materialize. This concern was reflected in the latest earnings report: the company’s fourth-quarter earnings per share were $1.95, slightly below Wall Street expectations. Simultaneously, the company’s free cash flow also saw a significant decline. For the twelve months ending in the fourth quarter, free cash flow was $11.2 billion, far lower than the $38.2 billion reported for the same period the previous year.
It is precisely the market’s anxiety over AI spending that has led to a significant pullback in Amazon’s valuation. Currently, the stock’s forward price-to-earnings ratio for the next twelve months is approximately 25.8 times, well below its five-year average (48.1 times). In the view of some on Wall Street, this actually presents a potential buying opportunity for investors bullish on the long-term returns of AI.
Morgan Stanley analyst Brian Nowak pointed out in a report that Amazon itself possesses a powerful business that can directly benefit from the expansion of capital expenditure—Amazon Web Services (AWS). He believes AWS is an “underappreciated generative AI winner” in the market. Earnings reports show that demand for cloud computing services remains robust. As of the end of the fourth quarter, the company’s outstanding contractual obligations (order backlog) stood at a massive $244 billion, a year-over-year increase of 40%.
The analyst also noted that, similar to other cloud service providers, Amazon is currently constrained by capacity. Continuously expanding data centers to meet demand is key to driving business growth, but this inevitably comes with high costs. Therefore, they remain optimistic about the accelerated pace of AWS’s capital expenditure. Nowak has assigned an “Overweight” rating to Amazon with a price target of $300, implying an upside of over 45% from current levels.
Overall, Wall Street remains relatively optimistic about Amazon’s long-term prospects. According to statistics from FactSet, out of the 72 analysts covering the stock, 66 have given it a “Buy” rating.
Jeff Buchbinder, Chief Equity Strategist at LPL Financial, stated that as AI capital expenditure becomes a long-term theme, investors will pay closer attention to companies’ guidance on free cash flow prospects in the future. However, the consensus market expectation still points to “positive but volatile cash flow growth.”
