I'd Buy Amazon Stock While It Sits 12% Below Its Record

Shares of Amazon (NASDAQ:AMZN) set an all-time closing high of $284.02 on Aug. 3. They got there fast, jumping about 21% over the two trading days after the company posted its second-quarter results.

Since then, the stock has given back most of that jump. At roughly $249 as I write, shares sit about 12% below their record. And the stock's rise of about 8% so far in 2026 now lags the S&P 500 (SNPINDEX:^GSPC), up about 13%.

But Amazon hasn't reported another quarter since that peak. The latest numbers investors have are the same ones that sent the stock to its record in the first place.

I think this makes the drop an opportunity.

Image source: The Motley Fool.

What's changed since August?

The biggest new development is a lawsuit. On Aug. 31, the Federal Trade Commission and 22 state attorneys general sued Amazon over its ad auctions. The complaint alleges that Amazon described them as second-price auctions (where the winner pays just above the next-highest bid) but charged Sponsored Products advertisers their own winning bid around 80% of the time by 2024.

Amazon disputes the claims and estimates that its method saved advertisers more than $8 billion from 2021 to 2025.

The lawsuit matters because advertising is growing faster than Amazon overall. Advertising revenue climbed 26% year over year in the second quarter to around $19.8 billion, against 20% growth in total sales. But cases like this can take years to play out, and the complaint doesn't change what the company posted in July.

AWS growth keeps accelerating

The biggest reason I like Amazon stock is its cloud computing unit, Amazon Web Services (AWS). Showing how much momentum the business has gained, AWS revenue rose 37% year over year in the second quarter to $42.2 billion. That growth rate has climbed every quarter for a year, from 17.5% in the second quarter of 2025 to 20%, then 24%, then 28%, and now 37%. And AWS operating income rose around 64% year over year to $16.6 billion, so the unit's profits grew even faster than its sales.

Notably, the largest jump in the series was in the latest quarter. This suggests the demand for AWS might still be rising.

Much of this demand is already under contract. Amazon's backlog (commitments in customer contracts not yet recognized as revenue, mainly tied to AWS) hit around $496 billion as of June 30, up from about $195 billion a year before.

Anthropic, the company behind the Claude artificial intelligence (AI) models, is one reason. In April, it committed to spend more than $100 billion with AWS over the next 10 years.

Is the spending a reason to wait?

Of course, adding all this capacity costs a lot. In the trailing 12 months, Amazon spent around $169 billion on property and equipment (net of proceeds from sales and incentives), up from about $103 billion a year earlier. Amazon attributes this rise mostly to investments in AI. The spending drove free cash flow to an outflow of around $7.6 billion in that period, versus an inflow of about $18.2 billion a year before.

Granted, negative free cash flow can look scary for a business long known for generating cash. But the spending is going to the segment growing fastest, and a big part of the demand for it is already signed.

The profits keep climbing, too. Amazon's operating income rose 43% year over year in the second quarter to $27.5 billion. And for the third quarter, management forecast operating income of $22.5 billion to $26.5 billion, up from $17.4 billion a year before (a quarter that included about $4.3 billion in special charges).

And the stock's cheaper than it was in August. At around $249, shares trade at about 24 times expected 2027 earnings. With that same earnings estimate, the record price came to about 27 times earnings. Put another way, investors can now pay less for the same second-quarter results that sent the stock to its record.

What would change my mind is AWS itself. If its growth fell back toward the 20% range while spending kept rising, I'd find it harder to justify the cost of the build-out.

For now, I think Amazon stock is worth buying at this price -- maybe gradually, because the spending could keep weighing on cash flow for a while.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.