The recent market sell-off created a number of solid entry points for equities. But one growth stock that should be on your list is Amazon (AMZN +2.05%), whose shares are down about 20% from their highs as of this writing.
Let's look why Amazon is a great stock to scoop up on this market dip.
NASDAQ: AMZN
Key Data Points
A big spender
Throughout its history, Amazon has invested heavily in its business. The company essentially built the world's largest warehouse and logistics network from scratch. This helped transform the company from an online book seller to the largest e-commerce marketplace in the world.
Meanwhile, e-commerce is not even its largest business by profitability: That title goes to its Amazon Web Services (AWS) cloud computing business. It created the infrastructure-as-a-service business model when it launched AWS back in 2006 after facing its own struggles scaling up its infrastructure as well as when trying to help affiliates build their platforms.
Both of these businesses took a massive amount of capital expenditure (capex) to build out. Meanwhile, the company would often sacrifice short-term profits during heavy investment cycles. However, Amazon has never taken a short-term view of its business, and instead has been focused on the long term, not just quarterly profits. This attitude helped it grow to become one of the largest companies in the world.
Today, the company is going through its next big investment phase with artificial intelligence (AI). AWS has been a nice beneficiary of AI, as Amazon has been at the forefront of helping customers build their AI models and applications. With its BedRock platform, it offers customers a number of leading foundation AI models that they can use as a starting point. The company has developed its own models, while it also offers popular models such as Meta Platforms' Llama, Anthropic's Claude, and DeepSeek's R1 model. Meanwhile, its SageMaker platform can help developers create and train more custom models and deploy them in a production-ready hosted environment.
Amazon has also developed its own customer AI chips through its Annapurna Labs subsidiary to help with both AI training and inference. Custom AI chips tend to perform better at the very specific tasks for which they were designed and consume less energy, leading to cost savings.
AWS has been seeing strong growth as a result of AI, with segment revenue growing 19% last quarter. However, the unit has been capacity constrained given how strong demand has been. As such, the company is once again investing big, announcing it will spend a whopping $100 billion in capex this year, largely to build more data center infrastructure to add capacity for AWS.
Investors sometimes don't like Amazon's spending due to the impact it can have on its short-term results. Large amounts of capex spending increases depreciation costs. Capex spending is the initial upfront costs the company outlays and it does not directly impact earnings at the time it is spent. Instead the cost is spread out over an asset's useful life, which impacts earnings. For servers and networking equipment, Amazon currently depreciates the costs over six years.
However, Amazon has historically come through periods of high capex spending as a better company.
Image source: Getty Images.
An e-commerce giant
While much of the attention on Amazon at the moment is around AWS and its AI opportunity, the company remains the leader in e-commerce. This segment is still a solid grower, with its North American revenue up 10% in Q4 and international revenue increasing 8%.
However, the company is growing operating income much faster than its revenue. North American operating income climbed 43% last quarter, while international operating income flipped from a loss of $419 million to a profit of $1.3 billion.
This is due to the company using AI to become more efficient, as well as through high-margin ad sales. Amazon has turned to AI to help with such tasks as predicting inventory trends, finding better delivery routes, and using AI robots in its warehouse that can do such things as determine if an item is damaged before it is shipped.
Meanwhile, Amazon has become the world's third-largest digital advertising company behind Meta and Alphabet's Google. Sponsored ads remains a fast-growing and high gross margin business. Last quarter, its advertising revenue grew by 18% to $17.3 billion, which is off a pretty large base.
Attractive valuation
The recent drop in price has left Amazon trading at a trailing price-to-earnings (P/E) of 34.5 times and a forward P/E of just over 25 times 2026 analyst estimates. Those metrics are some of the cheapest the stock has been at in quite awhile.
AMZN PE Ratio (Forward 1y) data by YCharts
With a big AI opportunity in front of it and an attractive valuation, now is a great time to buy Amazon stock.
