Should You Buy Amazon Stock After 13% YTD Decline?

Accelerating Growth in Amazon’s High-Margin Cloud Division Fails to Lift Shares in 2026

Despite notable advancements in its high-margin cloud computing segment, Amazon’s stock performance has been lackluster at the beginning of 2026. In what has been a challenging start to the year, Amazon shares have declined approximately 13% since January 1. This downturn is particularly striking given the company’s recent financial achievements, including fourth-quarter revenue that surpassed analyst expectations and featured an uptick in overall sales growth momentum, along with optimistic guidance for the first quarter of the year.

The primary catalyst behind this stock price drop appears to be the company’s announcement of plans to invest a staggering $200 billion in capital expenditures throughout 2026. These investments are largely aimed at capitalizing on emerging growth prospects, with a significant emphasis on artificial intelligence technologies. Although company executives have repeatedly emphasized their expectation of generating substantial long-term returns on this invested capital, many investors remain skeptical, perceiving the scale of these expenditures as carrying considerable uncertainty and risk.

Given this sharp decline in share price—especially when contrasted with the S&P 500’s relatively stable performance so far this year—some market observers are questioning whether this presents an attractive entry point for new investors or an opportunity to add to existing positions.

Pedal to the Metal: Aggressive Investment in Future Growth

Amazon’s latest quarterly earnings report paints a picture of a leadership team brimming with confidence regarding the company’s trajectory and a willingness to back that optimism with substantial financial commitments. While the general public often associates Amazon primarily with its dominant e-commerce platform, it is worth noting that the company’s most lucrative division is actually its cloud computing arm, Amazon Web Services, or AWS. This segment is currently experiencing robust demand driven by customer needs in the artificial intelligence space.

The influence of AI on Amazon’s operations is particularly pronounced within AWS, where revenue growth has picked up noticeable speed. In the fourth quarter, AWS reported a 24% increase in revenue compared to the same period a year earlier, marking an improvement from the 20% growth seen in the third quarter. For a business unit that generates over $140 billion in annualized recurring revenue, such expansion rates are not only impressive but represent a significant acceleration in a mature market.

AWS continues to benefit from steady demand in its traditional, non-AI services, particularly as enterprises continue to shift their data infrastructures to cloud environments. Simultaneously, the division is capitalizing on the surging interest in AI applications. During the fourth-quarter earnings discussion, Amazon CEO Andy Jassy highlighted a key trend: customers prefer to execute their AI workloads in environments where their existing applications and data already reside.

Jassy further noted that as clients scale up their large-scale AI operations on AWS, they tend to expand their overall usage of core AWS services. He attributed much of this positive momentum to Amazon’s broad and integrated suite of AI tools and services, which provides a competitive edge in attracting and retaining high-value customers.

Amazon’s AI-related opportunities are not confined solely to cloud services. The company is also making significant strides in its custom AI chip development, targeting one of the most pressing challenges in the AI hardware market: achieving optimal cost efficiency alongside high performance. The Trainium2 AI chip, designed specifically for superior price-to-performance ratios, has achieved the fastest adoption rate of any chip launch in Amazon’s history and has quickly scaled to a multibillion-dollar annual revenue run rate.

When paired with Amazon’s Graviton processor lineup, the company’s in-house chip portfolio now contributes more than $10 billion in annualized revenue. This growing hardware ecosystem underpins the rationale for Amazon’s bold $200 billion capital expenditure commitment for the year, with management expressing firm belief in the potential for these investments to deliver compelling returns over the extended horizon.

Is Amazon Stock a Buy at Current Levels?

With such promising momentum across key growth areas and expansive opportunities ahead, the question arises: does Amazon represent a compelling investment opportunity right now? Trading at roughly 28 times forward earnings, the stock may not qualify as deeply undervalued, but its multiples appear reasonable when evaluated against the strength of the company’s fundamentals and growth prospects.

In the fourth quarter, Amazon achieved 14% year-over-year revenue growth, reaching $213.4 billion, with AWS contributing 17% to the total. Even more telling is AWS’s outsized impact on profitability: it generated half of the quarter’s operating income and 57% of the full-year figure. This concentration underscores both the strengths and potential vulnerabilities of Amazon’s business model, as its financial health is increasingly tied to the performance of this single, high-margin segment.

That said, this heavy dependence on AWS also positions it as a powerful lever for future enhancement. Should the aggressive capital investments catalyze further acceleration in AWS growth and efficiency, it could elevate Amazon’s overall operating margins, paving the way for a meaningful upswing in earnings power over time.

In summary, despite the near-term pressures from elevated spending, Amazon stock appears to offer attractive value on this pullback. The combination of accelerating cloud revenue, innovative AI hardware, and a leadership committed to long-term value creation supports a positive outlook. However, the fast-evolving dynamics of AI, cloud infrastructure, and related software markets introduce notable volatility risks. Investors might consider allocating a modest portfolio weight to Amazon to balance potential upside with prudent risk management.

Key considerations for potential buyers include the transformative potential of AI across Amazon’s operations, the proven scalability of AWS, and the company’s track record of turning ambitious investments into market leadership. While short-term market reactions to capex guidance have created this dip, the underlying business momentum suggests resilience and substantial growth runway ahead. Monitoring quarterly updates on capex efficiency and AI adoption rates will be crucial for validating the investment thesis over time.