Amazon(NASDAQ: AMZN) The stock is down 14% year-to-date, and shares have now declined in nine consecutive trading sessions, the company’s longest losing streak since July 2006.
What happened last time? Amazon stock is up 128% over the next year. We may not see a repeat performance this time around, but Wall Street thinks the stock is severely undervalued. Not a single analyst recommends a sell, and the median target price of $285 per share implies a 43% upside from its current share price of $199.
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Here’s what investors should know.
Image source: Getty Images.
Amazon reported fairly strong financial results in the fourth quarter, despite narrowly missing the consensus estimate on the bottom line. Revenue increased 14% to $213 billion, an acceleration from 13% last year, driven by particularly strong growth in sales in advertising and cloud computing services, as detailed below:
Finally, GAAP (generally accepted accounting principles) net income increased just 5% to $1.95 per diluted share. But several one-time charges (totaling $2.4 billion) reduced operating income, which factored into slow earnings growth. Excluding those costs, operating income would have increased by 30%.
While the lack of bottom calculated in the stock’s nine-day losing streak, investors are more worried about Amazon’s plans to spend $ 200 billion on capital expenditures in 2026, primarily to support the development of artificial intelligence (AI) infrastructure. If that estimate is accurate, capital spending will increase 56% from $128 billion in 2025, after rising 64% from $78 billion in 2024.
However, CEO Andy Jassy highlighted strong demand for AI services, custom AI chips, and robotics, saying the company anticipates “strong long-term return on invested capital.”
Despite recent share price declines, the investment thesis for Amazon remains sound. The company has a strong presence in e-commerce, digital advertising, and cloud computing, three markets projected to grow rapidly in the coming years. The estimates below (from Grand View Research) show how quickly spending could increase in each industry.
Retail e-commerce: 12% per year until 2030
Adtech: 14% per year until 2030
Cloud computing: 16% per year until 2033
Amazon has developed hundreds of generative AI tools to improve efficiency in its retail business. They optimize things like inventory placement, warehouse workflows (both human and robots), and last-mile delivery routes. Those investments are already paying off. Excluding one-time charges, Amazon’s operating margin improved by 1.5 percentage points in the fourth quarter.
CFO Brian Olsavsky said, “We will continue to optimize inventory placement to drive down the distance traveled, reduce the tox per package, and improve package consolidation, as well as launch robotics and automations to increase efficiency and elevate the customer experience.”
Meanwhile, Amazon Web Services (AWS) has added dozens of AI tools covering every layer of the technology stack: custom chips for training and inference in the infrastructure layer, developer services for building and managing AI applications in the platform layer, and various AI agents in the application layer. In turn, AWS revenue rose 24% in the fourth quarter, the fastest growth in 13 quarters.
CEO Andy Jassy told analysts that Amazon’s chip business (including custom central processing units [CPUs] and AI accelerators) have reached an annual revenue rate of more than $10 billion, and revenue is growing at a triple-digit pace. Jassy also said, “In 2025, AWS added more data center capacity than any other company in the world.”
Here’s the big picture: While Amazon is spending a lot of money on AI, other companies are doing the same, and Amazon can’t afford to fall behind. Additionally, expanding operating margins and accelerating cloud revenue growth suggest that those AI investments are paying off, according to Morgan Stanley.
Amazon wants to continue to show returns on invested capital, but the nine-day losing streak looks like an overreaction. Wall Street estimates that the company’s earnings will increase by 15% annually until 2027. This makes the current valuation of 28 times earnings look reasonable. Patient investors should feel comfortable buying a position today.
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Trevor Jennewine holds positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
Amazon Stock Last Did Something Seen in 2006. Indicates a Big Move in the Coming Year if History repeats itself. was originally published by The Motley Fool
