Amazon Stock Just Did Something Last Seen in 2006. It Signals a Big Move in the Next Year if History Repeats Itself.

Amazon (NASDAQ: AMZN) stock is down 14% year to date, and shares have now declined in nine consecutive trading sessions, the company's longest losing streak since July 2006.

What happened last time? Amazon stock soared 128% in the next year. We may not see a repeat performance this time, but Wall Street thinks the stock is deeply undervalued. Not a single analyst recommends selling, and the median target price of $285 per share implies 43% upside from its current share price of $199.

Here's what investors should know.

Image source: Getty Images.

Investors are worried Amazon is spending too much on artificial intelligence

Amazon reported fairly strong financial results in the fourth quarter, despite narrowly missing the consensus estimate on the bottom line. Revenue rose 14% to $213 billion, an acceleration from 13% last year, driven by particularly strong sales growth in advertising and cloud computing services, as detailed below:

• E-commerce (first-party): 10%
• E-commerce (third-party): 11%
• Advertising: 23%
• Amazon Web Services: 24%

On the bottom line, GAAP (generally accepted accounting principles) net income increased just 5% to $1.95 per diluted share. But several one-time charges (totaling $2.4 billion) reduced operating income, which factored into slow earnings growth. Excluding those expenses, operating income would have increased 30%.

While the bottom-line miss factored into the stock's nine-day losing streak, investors are more worried about Amazon's plans to spend $200 billion on capital expenditures in 2026, primarily to support the development of artificial intelligence (AI) infrastructure. If that estimate is accurate, capital expenditures will increase 56% from $128 billion in 2025, after increasing 64% from $78 billion in 2024.

However, CEO Andy Jassy highlighted strong demand for AI services, custom AI chips, and robotics, saying the company anticipates a "strong long-term return on invested capital."

The investment thesis for Amazon remains solid

Despite recent share price declines, the investment thesis for Amazon remains solid. The company has a strong presence in e-commerce, digital advertising, and cloud computing, three markets projected to grow quickly in the coming years. The estimates below (from Grand View Research) illustrate how fast spending may increase in each industry.

• Retail e-commerce: 12% annually through 2030
• Adtech: 14% annually through 2030
• Cloud computing: 16% annually through 2033

Amazon has developed hundreds of generative AI tools to improve efficiency across its retail business. They optimize things like inventory placement, warehouse workflows (both human and robots), and last-mile delivery routes. Those investments are already paying off. Excluding one-time charges, Amazon's operating margin improved 1.5 percentage points in the fourth quarter.

CFO Brian Olsavsky said, "We will continue optimizing inventory placement to drive down distance traveled, reduce touches per package, and improve package consolidation, as well as launch robotics and automations to increase efficiency and elevate the customer experience."

Meanwhile, Amazon Web Services (AWS) has added dozens of AI tools that span every layer of the technology stack: custom chips for training and inference at the infrastructure layer, developer services for building and managing AI applications at the platform layer, and various AI agents at the application layer. In turn, AWS revenue increased 24% in the fourth quarter, the fastest growth in 13 quarters.

CEO Andy Jassy told analysts that Amazon's chips business (including custom central processing units [CPUs] and AI accelerators) hit an annual revenue run rate above $10 billion, and revenue is growing at a triple-digit pace. Jassy also said, "In 2025, AWS added more data center capacity than any other company in the world."

Here's the big picture: While Amazon is spending a lot of money on AI, other companies are doing the same, and Amazon cannot afford to fall behind. Moreover, expanding operating margins and accelerating cloud revenue growth suggest those AI investments are paying off, according to Morgan Stanley.

Amazon must continue to show returns on invested capital, but the nine-day losing streak looks like an overreaction. Wall Street estimates the company's earnings will increase at 15% annually through 2027. That makes the current valuation of 28 times earnings look reasonable. Patient investors should feel comfortable buying a position today.

Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.