Some artificial intelligence (AI) stocks just haven't had as good a run as others. While the overall AI investment sector has done well, others have been left behind. One that has performed poorly over the past year is Amazon (AMZN 1.44%). While some may hesitate to call Amazon an AI stock, it's one of the most important companies in this sector thanks to Amazon Web Services (AWS).
I think Amazon can bounce back this year and deliver strong returns along the way.
Image source: Getty Images.
Amazon plays a huge role in AI
Since 2025, Amazon's stock has declined by around 7%. However, its revenue and earnings are up significantly from that time.
AMZN Revenue (TTM) data by YCharts.
The poor showing of Amazon's stock despite strong growth points to Amazon's valuation declining. That's exactly what has happened, as the market is unwilling to pay the premium that it used to pay to own Amazon's stock.
AMZN PE Ratio (Forward) data by YCharts.
At 26.5 times forward earnings, Amazon is now trading in the range that most big tech stocks do. This pullback was likely warranted, as the 30-plus times forward earnings investors used to have to pay for it were a little much considering the results.
However, I think right now is a reasonable price to pay for the stock, and any future gains will be caused by its underlying business improving.
During the fourth quarter (Q4), Amazon crushed it. Overall sales rose 14% year over year, compared with 12% growth during last year's Q4. Powering that acceleration was AWS, Amazon's cloud computing platform. Cloud computing plays an important role in AI because it gives developers access to the computing power needed to create and run AI models. Without cloud computing, the generative AI landscape would look far different from what it does today.
AWS grew at a 24% pace during Q4, the fastest rate in 13 quarters. That rewinds the clock to 2022, the year before AI really took center stage. This is a big deal for Amazon, as it shows that AWS is starting to become a top option to build AI models on. If it can contain this growth rate throughout 2026, I have no doubt that Amazon's stock will bounce back throughout the year.
NASDAQ: AMZN
Key Data Points
The only holdup I have is its spending. Amazon informed investors that it plans to spend $200 billion on capital expenditures during 2026, with most of that going to data centers. This will eat into Amazon's cash flows, which many investors don't appreciate. However, if the demand for AI computing is there, then building out the computing footprint makes sense. I'm going to give the benefit of the doubt to management, as they probably know more about the situation than the average investor.
I think that Amazon is a great buy today and should bounce back throughout 2026.
