Believe it or not, Amazon (AMZN 2.93%) stock has only risen about 39% over the past five years, dramatically underperforming the S&P 500's 70% gain over that same time frame. And the tech giant is off to a rough start in 2026, with shares down about 9% year to date as of this writing.
This sluggish stock performance comes as the market grapples with the company's staggering new capital expenditure plans. But is Wall Street missing the bigger picture? When you look under the hood, Amazon's underlying business remains incredibly strong, generating massive amounts of cash from operations.
Let's dive into the e-commerce and cloud computing giant's recent results to see if this pullback is a buying opportunity.
Image source: Getty Images.
A reaccelerating catalyst
Despite its already massive size, Amazon continues to grow at a rapid clip. In the fourth quarter of 2025, the company's net sales rose 12% year over year (excluding the impact of foreign exchange rates) to $213.4 billion.
Capturing the company's most important catalyst, its cloud computing business, Amazon Web Services (AWS), is seeing accelerating momentum. The segment's fourth-quarter revenue surged 24% year over year to $35.6 billion -- its fastest growth rate in 13 quarters. For a business segment with an annualized run rate of $142 billion, an acceleration like this is particularly impressive.
Amazon's profitability also moved materially higher during the period. The company reported fourth-quarter operating income of $25.0 billion -- up 18% year over year, demonstrating the company's operating leverage.
And looking ahead to the first quarter of 2026, management guided for net sales between $173.5 billion and $178.5 billion. At the midpoint of $176 billion, this forecast implies a strong 13% year-over-year growth rate.
The $200 billion question
Despite this top-line strength, one figure in the report may have spooked some investors: Amazon's free cash flow declined sharply. For the trailing 12 months, free cash flow -- or operating cash flow less capital expenditures -- fell to $11.2 billion from $38.2 billion in the year-ago period.
The decline was driven primarily by a $50.7 billion year-over-year increase in capital expenditures. This massive outlay reflects the company's aggressive investments in artificial intelligence (AI) infrastructure. And the spending isn't stopping anytime soon.
In the company's fourth-quarter earnings call, Amazon CEO Andy Jassy explained the rationale behind the spending surge.
"We expect to invest about $200 billion in capital expenditures across Amazon, but predominantly in AWS, because we have very high demand," Jassy explained. "Customers really want AWS for core and AI workloads. And we are monetizing capacity as fast as we can install it."
Of course, a number that large is bound to create near-term pressure on free cash flow.
NASDAQ: AMZN
Key Data Points
Priced for perfection?
But this is where investors need to zoom out and look closely at the underlying business mechanics. While free cash flow is temporarily suppressed due to this massive AI investment cycle, the cash generated by Amazon's actual operations remains incredibly strong.
Trailing-12-month operating cash flow actually rose 20% year over year to a staggering $139.5 billion. This operating cash flow figure is arguably a much better way to evaluate the company's current performance than free cash flow. The difference between the two metrics is simply the cash management is choosing to aggressively deploy back into the business.
With the stock trading at a price-to-earnings ratio of about 30 as of this writing, shares may not seem like a screaming bargain. A valuation like this assumes Amazon will successfully navigate its heavy investment cycle and ultimately translate that infrastructure into highly profitable, recurring revenue. If enterprise demand for AI tools falters or this capacity build-out takes longer to pay off, that multiple leaves little room for error.
But given the accelerating growth in AWS, which is higher-margin revenue than Amazon's overall business, I believe the risk-reward trade-off is attractive after the stock's year-to-date pullback. The underlying business is producing enough cash to back an extraordinary $200 billion AI build-out while continuing to grow its core operations at a double-digit pace.
Ultimately, I think Amazon stock is a buy on this dip.
