Should You Avoid Amazon Stock, or Is This a Once-in-a-Decade Buying Opportunity?

Would you be shocked to learn that Amazon (NASDAQ: AMZN) stock has underperformed the broad market indices over the past five years? That's right: Even though the mega-technology company keeps posting impressive growth figures, it is only up 23% cumulatively from five years ago. The S&P 500 (SNPINDEX: ^GSPC) has produced a total return of 88% over that same time frame.

Amazon's stock has underperformed the index due to investor concerns about losing the race in artificial intelligence (AI), large capital expenditure plans, and the lack of profitability in its e-commerce and retail segments.

However, if you look at Amazon's consolidated financials, it is as popular as ever. Does that make the stock a once-in-a-decade buying opportunity right now?

Image source: Amazon.

Investor capex in focus

The first concern for Amazon is its ginormous capital spending plan. To race ahead and build out enough infrastructure for the AI revolution, Amazon plans to spend $200 billion on capital expenditures (capex) in 2026. That would be well above its 2025 capex of $132 billion, which was already a company record. This will exhaust all of the company's $140 billion in operating cash flow, meaning the business may have to take on debt to fund this growth.

While investors are rightfully cautious about this aggressive spending, the leader of Amazon's cloud computing division -- Amazon Web Services (AWS) -- says that the company has a backlog building that will likely not be reached for years. This means demand for cloud computing well outstrips supply.

This will be a short-term hit to free cash flow but should lead to long-term profit growth at Amazon. AWS is generating $129 billion in annual revenue and has an operating margin of 35%, all while growing 24% year over year last quarter. If this 24% revenue growth can continue for the next three years as Amazon races to build data centers, AWS revenue would grow to close to $250 billion and operating income to close to $90 billion.

A retail business firing on all cylinders

Investors still underrate the profit potential of Amazon's retail business, which includes e-commerce, subscriptions, advertising, and some physical locations.

Profit margins in North America were still slim at 7% in 2025, but this understates the true potential margin of all these segments combined. Within retail, Amazon includes many research projects that aren't under the AWS umbrella, such as Alexa, consumer AI, and a new satellite internet service called Amazon Leo. All these research divisions are likely burning tons of cash for Amazon, but could turn into huge businesses one day.

Last quarter, Amazon's North American retail segment grew revenue by 10% year over year, reaching $426 billion for all of 2025. It is growing faster than giants like Walmart and taking share from overall retail spend in North America.

What's important for this division is continued profit margin expansion, which should happen as advertising, subscription revenue, and third-party e-commerce fees grow faster than overall segment revenue. If this keeps occurring, Amazon's retail profit margins should exceed 10% in the near future.

Data by YCharts.

Amazon stock: Buy or sell?

Following its latest earnings report and the stock's post-earnings drop, Amazon is now trading at a market cap of $2.2 trillion.

This may seem gargantuan, but it is heavily discounting Amazon's long-term profit potential. As mentioned, AWS is well on its way to $250 billion in annual sales, as long as the AI boom continues. Combined with the North American retail division, which should get to over $500 billion in revenue in the near future, and the international retail segment at $161 billion in revenue, Amazon's consolidated sales could eclipse $1 trillion at some point within the next five years.

But what profit margin will the company generate on $1 trillion in sales? With 35% margins from AWS and rising margins in retail, I think the company as a whole can easily produce a 15% profit margin once it scales to $1 trillion in revenue. That equates to $150 billion in annual earnings, or less than 15x its current market capitalization.

For a company that is as high-quality as Amazon, this looks like a bargain price and a once-in-a-decade buying opportunity during this capex inflection.

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