Amazon’s stock has experienced a sharp decline following the release of its fourth-quarter earnings report, raising concerns among investors. After starting the year on a robust trajectory, shares of the e-commerce and cloud computing powerhouse have recently taken a noticeable downturn, leading many to question the health of the investment.
A significant factor contributing to the stock’s drop is Amazon’s accelerated capital expenditures (capex), which have surged over the past three years. The growing demand for artificial intelligence (AI) has necessitated substantial investments across various infrastructures, including the construction of new data centers and the development of custom silicon chips, supplemented by graphics processing units (GPUs) from Nvidia. Investors found themselves surprised when Amazon announced plans for a staggering $200 billion in capex for the year, well above the anticipated $150 billion.
On the financial front, Amazon reported earnings for the fourth quarter and the entirety of 2025 recently. The company’s market metrics indicate that its current share price stands at approximately $198.82 with a market capitalization of $2.1 trillion. Daily trading has shown a range between $197.28 and $201.16, and while the stock has dropped by 0.39%, its gross margin remains a solid 50.29%.
The market’s apprehension stems largely from the inverse relationship displayed between increasing infrastructure spending and a slowdown in cash flow generation. This trend has understandably spooked investors, as rising expenditures could suggest a potential strain on overall profitability.
However, a key point of analysis may lie in Amazon’s performance in its Amazon Web Services (AWS) division, which has seen continuous growth in sales and operating profits over the past year. The success of this high-margin cloud business is increasingly enabling Amazon to invest capital into various AI-related initiatives. The company’s strategy includes constructing data centers and creating custom chips, alongside a strategic investment in AI firm Anthropic, all aimed at vertically integrating its AI operations.
From a long-term perspective, these investments could lead to substantial cost reductions and enhanced earnings growth, demonstrating a shrewd approach in light of the current technological demands. Although rising capex may pose challenges for free cash flow in the short term, the potential long-term benefits are compelling.
As of now, Amazon’s forward price-to-earnings (P/E) ratio is nearing its lowest point throughout the ongoing AI revolution. Given the reacceleration of AWS sales paired with robust profit margins, the rationale behind Amazon’s ongoing investment in AI infrastructure appears strategically sound. While concerns about execution risks remain valid, Amazon has shown a history of navigating these challenges effectively.
In light of recent sell-offs, many analysts believe that the market’s reaction may be overstated. As such, the sentiment among long-term investors leans toward viewing Amazon as a strong candidate for portfolio inclusion, positioning it as a potentially lucrative buy in the current market landscape.
