In a rough start to 2026, shares of Amazon (AMZN +0.11%) have fallen about 13% year to date. Interestingly, this is despite the company posting better-than-expected fourth-quarter revenue (featuring an acceleration in its top-line growth rate) and providing guidance for strong sales growth in Q1.
The main reason for the stock's sell-off has been management's plan to outlay an extraordinary $200 billion on capital expenditures in 2026 as the company pursues growth opportunities -- especially in artificial intelligence (AI). Even though management insists the company anticipates a strong long-term return on invested capital, investors seem convinced that the risks of this big spending warrant some extra caution.
So, with the stock down sharply year to date, even as the S&P 500 is about flat for the year, is this a buying opportunity?
Image source: Getty Images.
Pedal to the metal
Amazon's most recent quarterly update shows a management team that is upbeat about its growth opportunities and a company that is putting its money where its mouth is.
While most consumers may think of Amazon as an e-commerce company, its most profitable operation is actually its cloud computing business -- and that's where it's seeing significant opportunities to meet its customers' significant demand for AI.
The accelerant that AI has been on Amazon's business is most evident in its accelerating growth in its cloud computing business, Amazon Web Services. Amazon's fourth-quarter AWS revenue rose 24% year over year. This is up from 20% year-over-year AWS revenue growth in Q3. For a business segment with more than $140 billion of annual run rate revenue, this is exceptional growth.
While AWS continues to see strong growth in core non-AI workloads as businesses migrate their data to the cloud, the company is also benefiting from customers' demand for AI.
"We consistently see customers wanting to run their AI workloads where the rest of their applications and data are," said Amazon CEO Andy Jassy in the company's fourth-quarter earnings call. "We are also seeing that as customers run large AI workloads on AWS, they are adding to their core AWS footprint as well."
But the biggest catalyst for AWS' AI momentum, Jassy said, is the company's comprehensive AI capabilities.
And Amazon's AI opportunity extends beyond cloud computing. The company is also seeing incredible momentum in its AI chip business as the company focuses on addressing the major issue with AI chips today: cost.
The company's Trainium2 AI chip, which is focused on price-performance, has been its fastest-ramping chip launch ever, and it's grown into a multibillion-dollar annualized run rate product.
Combining its Trainium chips with its Graviton chips, Amazon now has a chip business with more than $10 billion in revenue on an annual run rate basis.
All of this helps explain why the company believes it can confidently spend $200 billion in capital expenditures this year and achieve an attractive long-term return on invested capital.
NASDAQ: AMZN
Key Data Points
Is Amazon stock a buy
With impressive momentum and exceptional growth opportunities, is Amazon stock a buy today?
Given the stock's valuation of about 28 times earnings, shares may not be a bargain, but they do look sensibly priced given the company's underlying financials. Amazon's fourth-quarter revenue rose 14% year over year to $213.4 billion -- and its fast-growing business, AWS, accounted for 17% of that revenue. However, AWS's operating income accounted for half of its fourth-quarter operating income and 57% of its full-year operating income.
While Amazon's heavy reliance on AWS is a risk, it's also an opportunity. If this business picks up momentum thanks to the company's big capital expenditures, it could transform the overall business into a higher-margin operation and ultimately help earnings growth inflect over the long haul.
Overall, I think Amazon stock looks like a buy on this dip. However, given the rapidly changing nature of cloud computing and software right now due to AI, investors should view the stock as high risk and keep any position relatively small as a percentage of their overall portfolio.
