Only a Few "Magnificent Seven" Stocks Look Like Buys Right Now. This Is One of Them.

It has been a difficult stretch for the broader market, and today's sharp sell-off only added to the anxiety. For investors looking at the "Magnificent Seven," the setup is particularly challenging. Many of these tech giants still trade at demanding valuations that leave little room for error -- especially during a period marked by ongoing geopolitical conflict and the persistent uncertainty surrounding artificial intelligence (AI).

But market pullbacks often create opportunities if you know where to look. Trading at about $199 as of this writing, Amazon (NASDAQ: AMZN) has seen its shares slide in recent weeks amid the broader tech sell-off, and following management's announcement that it will invest about $200 billion in capital expenditures this year. The recent decline puts shares down about 14% year to date, underperforming the S&P 500.

The hesitation toward the stock is understandable given the sheer scale of the company's massive capital expenditure plans for 2026. However, I think Amazon stock's recent sell-off has gone too far, creating a buying opportunity.

Image source: Getty Images.

A cash-generating machine

When a company plans to invest roughly $200 billion in capital expenditures in a single year, the market is bound to ask questions. And that's what the market seems to be doing lately. Will the company really see a strong payoff on its soaring capital expenditures?

After all, even in Q4 -- before the company's more aggressive spending plans for 2026 were underway -- Amazon's free cash flow is already pressured by a huge increase in capital expenditures last year. Amazon's trailing-12-month free cash flow dropped to $11.2 billion at the end of 2025 -- down from $38.2 billion in 2024.

But judging the e-commerce and cloud giant solely by its free cash flow right now misses the mark. A more accurate measure of the company's more durable business trajectory is its operating cash flow, which strips out those heavy infrastructure investments. For 2025, Amazon's trailing-12-month operating cash flow surged 20% year over year to an incredible $139.5 billion.

This metric shows that while free cash flow is constrained by capital expenditures, the core business is generating substantial cash.

The gap between operating cash flow and free cash flow simply reflects management's decision to reinvest heavily in AI infrastructure.

Cloud momentum justifies the spending

The reason for that aggressive reinvestment becomes obvious when you look at Amazon Web Services (AWS). The cloud computing segment is experiencing a significant reacceleration, driven by intense demand for both core workloads and generative AI applications.

During the fourth quarter of 2025, AWS sales increased 24% year over year to $35.6 billion. That marks the segment's fastest expansion in more than three years. More importantly, the cloud division is achieving this acceleration at a breathtaking scale.

"AWS is now a $142 billion annualized run rate business," said Amazon CEO Andy Jassy during the company's earnings call.

And this scale makes the segment's growth even more notable, Jassy emphasized during the call: "As a reminder, it's very different having 24% year-over-year growth on a $142 billion annualized run rate than to have a higher percentage growth on a meaningfully smaller base which is the case with our competitors."

Far from risk-free

Of course, betting on Amazon right now requires investors to accept some risks. For instance, the company's heavy capital expenditure cycle means that if enterprise AI demand unexpectedly falters, the company will be left with excess capacity and compressed margins. Further, geopolitical tensions could weigh on consumer sentiment or even lead to supply chain challenges, potentially dragging down Amazon's retail segment's profitability.

Yet, at its current price near $199, the stock's valuation does a pretty good job of accounting for these challenges. Shares currently trade at a price-to-earnings ratio of about 28. And the stock's price-to-operating-cash-flow ratio arguably adds even more valuable context. Shares trade at just 15 times trailing-12-month operating cash flow. These are attractive valuation multiples for a business with such dominant market positions and accelerating high-margin cloud growth.

In short, I think the market's recent pessimism has created a clear opening.

While some Magnificent Seven peers still look stretched, I believe Amazon's underlying cash flow is a nice safety net, bolstering the long-term bull case for the stock. After all, the company could reduce its capital expenditures if management decides the payoff from its growth investments won't be as attractive as expected.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.