Down 13% in 1 Month, Is Amazon a Buy, or Is the Worst Still to Come?

It is not often that one focuses on troubles when discussing Amazon (NASDAQ: AMZN) stock. Nonetheless, both the e-commerce and the cloud segments within its business have caused some investors to worry about the company's direction.

The 13% pullback puts the stock in correction territory. Although the stock is unlikely to crater, this level can leave investors wondering whether the consumer discretionary stock is a buying opportunity at current levels or whether they should brace for further downside.

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Why Amazon has some investors worried

For all of its challenges, Amazon remains the leading company in the e-commerce and cloud industries.

However, investors have become concerned about the "stretched" consumer, an indication that household spending could fall. On the cloud side of the business, the $200 billion pledged to capital expenditures (capex) is so high that it has concerned investors despite Amazon's $143 billion in liquidity. Such worries helped make it the worst performer among the "Magnificent Seven."

Amazon's valuation has also fallen significantly. Its P/E ratio recently was 28, a level below the S&P 500 average of 32. That is a far cry from the days when Amazon routinely commanded earnings multiples above 50 (and sometimes above 100).

One potential headwind is its $2.6 trillion market cap. This implicitly means that the company has to create at least another $2.6 trillion in market value for the stock price to double, decreasing its appeal compared to smaller companies.

Moreover, the market can always offer surprises that no investors or analysts can anticipate. Hence, one cannot completely dismiss the possibility of further downside.

Signs of hope

Still, while the capex spending may appear concerning on the surface, it may already have begun to pay off for Amazon. In the first quarter of 2026, net sales rose by 17% yearly. This is well above the 9% annual growth in net sales in the first quarter of 2025.

Additionally, the company's $30 billion in net income rose by 77%. Admittedly, almost $16 billion of that came from investment-related gains, though the operating income increased by 29%. When we also consider the aforementioned 28 P/E ratio, the stock appears reasonably priced.

Furthermore, looking beyond the financial metrics, its business-related challenges appear to be short-term, if they exist at all. Even as analysts focused on the "stretched" consumer, online sales rose by 12% annually in Q1, indicating that Amazon has found a way to sidestep this issue.

Its cloud and artificial intelligence businesses also remain competitive. Grand View Research forecasts a 16% compound annual growth rate for the cloud. This is well below AWS's net sales growth of 28% in Q1, a further confirmation that Amazon's massive investments have already begun to pay off for the company.

Is Amazon a buy?

Given the state of Amazon, its stock looks like a buy at current levels.

Concerns about its massive capex spending are likely to linger, and negative consumer trends could affect it. The increasingly large market cap could also mean slower growth.

Fortunately, that growth will still leave Amazon room to outperform the market. Moreover, its double-digit net sales growth continues despite the headwinds, arguably making Amazon a reasonably priced stock at current levels.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.