Amazon Has Underperformed in 2026. Is the Stock a Bargain Now?

In a year when the artificial intelligence (AI) trade minted fortunes across chipmakers and power suppliers, one of the companies best positioned to profit from AI at scale has been left behind. Amazon (NASDAQ: AMZN) has been one of the megacap laggards of 2026, up only modestly while the AI names raced higher around it.

What makes that odd is that Amazon's business is arguably in its best shape in years. The stock even drew fresh attention recently when a well-known hedge fund manager was reported to have trimmed his position, adding to a sense that the market has cooled on it.

So, with the stock sitting about 12% below its 52-week high, is Amazon a bargain hiding in plain sight? Or is the market right to hesitate?

Image source: Getty Images.

The business is quietly setting records

The place to look first is the cloud. Amazon Web Services, the company's most important profit engine, just reaccelerated. AWS revenue rose 28% year over year to $37.6 billion in the first quarter of 2026. That was its fastest growth in 15 quarters, and it puts the business at about a $150 billion annual pace.

A good chunk of that reacceleration is AI itself. Companies increasingly train and run their models where their data already sits, and for many of them that means AWS.

The growth is also enormously profitable. AWS generated $14.2 billion in operating income at a 37.7% margin, which is why it drives most of Amazon's profits even though it is a fraction of total revenue.

The rest of the company pulled its weight, too. Total revenue rose 17% to $181.5 billion, and operating income jumped to $23.9 billion. That worked out to an operating margin of 13.1%, a record for Amazon and a sign that years of cost discipline in retail are finally showing up.

By segment, North America revenue rose 12% to $104 billion, and the international business grew 19%, both turning a solid profit. Advertising, a high-margin business tucked inside retail, keeps growing at a double-digit clip and quietly pads those margins.

Amazon is even building a substantial AI chip business. Its custom silicon now runs at more than a $20 billion annual revenue pace and is growing at triple-digit rates, as customers hunt for cheaper alternatives to the priciest graphics processing units (GPUs).

What's holding the stock back

So why hasn't the stock followed? The short answer is spending. Amazon poured $44.2 billion into capital projects in the first quarter alone, most of it for AI infrastructure, up from $25 billion a year earlier.

That surge has all but erased the company's free cash flow, which fell to about $1.2 billion over the trailing 12 months, down from nearly $26 billion.

That is the figure that worries investors. A company famous for generating cash is suddenly generating almost none. The bet is that today's spending builds the data centers that power tomorrow's AWS growth. But that payoff takes years, and the timing is never guaranteed.

Still, I think the trade-off looks reasonable. The spending is a choice, not a symptom of a struggling business. AWS is reaccelerating, retail margins are improving, and the chip business gives Amazon a second way to profit from AI.

Amazon has made this kind of bet before, too. It spent heavily to build AWS and its logistics network years ago, and both turned into enormous profit engines once the investment cycle passed.

And the price is fair. At about $244 as of this writing, Amazon trades at roughly 29 times earnings. That isn't the bargain-bin multiple its underperformance might suggest, but it's a reasonable price for a business growing profits at this rate, and a discount to where the stock has often traded in the past.

So is Amazon a bargain? Not a screaming one. But I think it's good value here, and the setup is appealing: a market-leading business performing well on several fronts, temporarily out of favor because it is investing heavily for the future.

Personally, I'd be comfortable buying on this weakness. I'd just go in knowing that the heavy spending, and the pressure it puts on free cash flow, is likely to continue for a while. For patient investors, the laggard may turn out to be the opportunity.

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.