Given the market's recent pullback, many investors are likely scouring their watchlists for oversold stocks with durable long-term growth stories. Two popular companies with clear long-term tailwinds that have been hit particularly hard in early 2026 are Tesla (TSLA +1.16%) and Amazon (AMZN +1.93%). Both businesses are heavily investing in artificial intelligence (AI) and are well-positioned to benefit from its ongoing adoption.
Down about 12% and 10% year to date, respectively, at the time of this writing, these stocks offer investors a way to consider investing in the AI theme.
But is Tesla a buy on the dip, or is Amazon the better choice?
Image source: The Motley Fool.
Tesla: The AI hardware transition
Tesla reminded investors of its ongoing transition from a traditional automaker to a physical AI company recently when it announced its fourth-quarter results. Highlighting the company's progress in physical AI, management noted that its active Full Self-Driving (Supervised) subscriber base grew 38% year over year to 1.1 million during the period. The electric vehicle maker even began removing safety monitors from its Robotaxis (self-driving vehicles in the company's nascent ride-sharing service) in Austin in January.
Of course, the problem for Tesla is not the company's ambitious vision for autonomous driving. It is the current reality of the core automotive business.
Tesla's total automotive revenue fell 11% year over year in the fourth quarter to $17.7 billion. Further, the company's overall operating margin declined from 6.2% in the year-ago period to 5.7%.
NASDAQ: TSLA
Key Data Points
Still, it's worth noting that the company continues to generate meaningful cash. Tesla's free cash flow (net cash provided by operating activities less capital expenditures) for the quarter checked in at a solid $1.4 billion (though this was notably down from about $2.0 billion in the year-ago quarter).
Additionally, Tesla expanded its energy storage deployments to record levels during the year, helping drive its energy generation and storage revenue up 25% year over year to $3.8 billion in Q4.
Amazon: A diversified AI powerhouse
Amazon's underlying business, meanwhile, has great momentum. The e-commerce and cloud computing specialist posted fourth-quarter net sales of $213.4 billion, representing an increase of 14% year over year, or 12% excluding favorable foreign exchange rates. Even better, the company's highly profitable Amazon Web Services (AWS) segment is seeing rapid adoption. AWS revenue surged 24% year over year to $35.6 billion -- accounting for about 17% of total revenue.
This top-line strength translated directly into robust profitability.
Amazon's overall operating income rose 18% year over year to $25.0 billion for the quarter. Management's relentless focus on efficiency across its North America fulfillment network is clearly paying off.
NASDAQ: AMZN
Key Data Points
Additionally, Amazon is actively capitalizing on the massive technological shift driven by AI through not only Amazon Web Services but also its chip business. The company's proprietary custom chips, specifically the Trainium2 and Graviton architectures, are driving massive scale and now represent an annual revenue run rate of over $10 billion.
And management is upbeat about the start of 2026. Amazon's guidance for the first quarter called for net sales between $173.5 billion and $178.5 billion. This implies growth of about 13% year over year at the midpoint.
The better buy
These are both great, fast-growing businesses. But one stock is clearly a better option today.
Amazon arguably wins in the comparison between the two stocks. Trading at about 29 times earnings, shares seem much more attractively priced than Tesla's -- especially given Amazon's strong, broad-based momentum, spanning e-commerce, digital subscriptions, cloud computing, and advertising.
Tesla, however, trades at a lofty price-to-earnings ratio of about 360 at the time of this writing. At this price, the market has arguably already priced in a successful and rapid rollout of its autonomous ride-sharing network, leaving very little margin for error.
Amazon gives investors access not just to big growth potential from its massive cloud computing investments, but also to strong growth in its existing operations, not to mention the stock's far more attractive valuation.
Of course, an investment in Amazon isn't without risks. A weak macroeconomic environment, for instance, could affect multiple parts of its business simultaneously. Weaker discretionary spending could weigh on both its retail and advertising arms, and an uncertain business environment could affect enterprise cloud spending. And, of course, the company faces regulatory risks given its massive size. Finally, soaring capital expenditures to support AI infrastructure will likely weigh on free cash flow in the near term.
Still, I like Amazon stock overall -- and I think its valuation does a much better job of pricing in risks than Tesla's.
