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3 Reasons to Hold Amazon Stock Despite 10.4% Decline in 3 Months
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Key Takeaways
Amazon stock fell 10.4% in 3 months, but AWS, AI and Prime remain key long-term growth drivers.
AMZN's AWS grew 24% in Q4 2025, with AI services like Bedrock seeing rapid adoption and demand.
Amazon plans $200B capex in 2026, pressuring free cash flow and raising near-term margin concerns.
Amazon (AMZN - Free Report) has shed roughly 10.4% of its value over the past three months compared with the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s decline of 19.3% and 11%, respectively, unsettling investors who have long regarded the e-commerce and cloud computing powerhouse as a dependable growth story.
Yet the pullback may not necessarily signal deteriorating fundamentals. Structural strengths across Amazon Web Services (“AWS”), the Prime membership ecosystem and an ambitious AI investment roadmap continue to underpin the company's long-term investment case, even as elevated capital expenditure commitments, margin pressures and broader macroeconomic uncertainties call for measured caution. For existing shareholders, the case for staying invested remains broadly intact. Prospective investors, however, may find greater reward in waiting for a more attractive entry point in 2026 rather than chasing the current dip, particularly given the near-term spending-driven pressure on free cash flow.
AMZN’s 3-Month Price Performance
Image Source: Zacks Investment Research
AWS Reacceleration and the AI Build-Out
Amazon Web Services posted 24% year-over-year revenue growth in the fourth quarter of 2025, reaching $35.6 billion, with operating income rising to $12.5 billion from $10.6 billion in the prior-year period. This reacceleration underscores robust enterprise demand for cloud and AI services, reinforcing AWS as the company's primary profit engine — and a growing one. Full-year 2025 AWS revenues reached $128.7 billion, reflecting a multi-year compounding growth trajectory. Amazon's Bedrock platform, which helps enterprises build and run generative AI applications, has become the fastest-growing service in AWS history, with customer spending growing 60% from one quarter to the next as of the most recent earnings call.
In April 2026, AWS continued expanding globally through AWS Summits — free in-person developer events across cities including Paris, London and Bengaluru — signaling sustained enterprise and developer demand. Amazon also launched Amazon Connect Health, an agentic AI platform for healthcare administration, now generally available, further broadening the company's AI services portfolio.
To sustain its infrastructure lead, management guided for approximately $200 billion in capital expenditures in 2026 — a 53% increase from $131.8 billion in 2025 — predominantly directed at AWS and AI capacity. While this signals long-run conviction, the spending surge has sharply compressed free cash flow from $38.2 billion to $11.2 billion, raising valid questions about near-term financial flexibility that investors should not overlook.
Prime and E-Commerce Resilience
Amazon's Prime membership program remains one of its most durable competitive advantages, supported by a growing portfolio of retail, media and healthcare offerings. In March 2026, Amazon hosted its annual Big Spring Sale from March 25 through March 31, offering discounts of up to 50% off, with exclusive Prime Spring Deals for members. The event featured Rufus, Amazon's AI shopping assistant, which can help users discover deals, track price history and enable an Auto Buy feature that purchases items automatically at a target price. Amazon also introduced one-hour and three-hour delivery options across hundreds of U.S. cities, further sharpening its logistics edge. Amazon also launched Alexa+ — its next-generation AI assistant — as a no-cost Prime benefit in the United States, deepening the program's value proposition.
Advertising services revenues grew 23% year over year to $21.3 billion in fourth-quarter 2025, driven in part by the expansion of ad-supported tiers on Prime Video, adding a high-margin revenue layer to the subscription model. North America segment revenues grew 10% to $127.1 billion in fourth-quarter 2025, while international segment revenues rose 17% to $50.7 billion.
Guidance Points to Growth, but Near-Term Pressures Remain
For the first quarter of 2026, Amazon guided net sales between $173.5 billion and $178.5 billion, representing year-over-year growth of 11% to 15%, with operating income projected in the range of $16.5 billion to $21.5 billion compared with $18.4 billion in first-quarter 2025. Management flagged approximately $1 billion in incremental year-over-year costs tied to Amazon Leo — the company's satellite Internet initiative now offering connectivity to enterprise and AWS customers — alongside investments in quick commerce and international pricing.
For 2025, net sales reached $716.9 billion, up 12% year over year, reflecting solid top-line momentum. The Zacks Consensus Estimate for AMZN's 2026 earnings is pegged at $7.78 per share, indicating an 8.51% increase from the year-ago figure.
That said, one-time charges in fourth-quarter 2025, including $1.1 billion in tax dispute resolution, $730 million in severance costs and $610 million in asset impairments, underscore that the road to sustained margin expansion may remain bumpy in the quarters ahead.
Valuation and Competitive Landscape
From a valuation standpoint, AMZN trades at a forward 12-month price/earnings ratio of 27X, a premium to the industry's 22.96X. Amazon's Value Score of C suggests limited near-term valuation support.
AMZN’s Premium Valuation
Image Source: Zacks Investment Research
In the cloud, Amazon leads, though Microsoft (MSFT - Free Report) , with its Azure platform and OpenAI partnership, continues to gain ground. Amazon, Microsoft and Alphabet’s (GOOGL - Free Report) fourth-quarter 2025 worldwide market shares were 28%, 21% and 14%, respectively, according to new data from Synergy Research Group. Google Cloud has positioned itself as an AI-native rival, and Oracle (ORCL - Free Report) is winning enterprise workloads with its database and cloud infrastructure strength. As Microsoft, Google and Oracle intensify their cloud and AI ambitions, Amazon's capacity to sustain AWS' growth lead will be a defining factor for AMZN's long-term investment case in 2026.
Conclusion
Amazon's long-term growth levers — spanning cloud, AI, advertising and Prime — remain structurally intact, but the company's aggressive capital spending cycle and near-term margin pressures warrant patience. Current shareholders would be well-served holding their positions, while new investors may benefit from awaiting a more compelling entry point before adding exposure. Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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3 Reasons to Hold Amazon Stock Despite 10.4% Decline in 3 Months
Key Takeaways
Amazon (AMZN - Free Report) has shed roughly 10.4% of its value over the past three months compared with the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s decline of 19.3% and 11%, respectively, unsettling investors who have long regarded the e-commerce and cloud computing powerhouse as a dependable growth story.
Yet the pullback may not necessarily signal deteriorating fundamentals. Structural strengths across Amazon Web Services (“AWS”), the Prime membership ecosystem and an ambitious AI investment roadmap continue to underpin the company's long-term investment case, even as elevated capital expenditure commitments, margin pressures and broader macroeconomic uncertainties call for measured caution. For existing shareholders, the case for staying invested remains broadly intact. Prospective investors, however, may find greater reward in waiting for a more attractive entry point in 2026 rather than chasing the current dip, particularly given the near-term spending-driven pressure on free cash flow.
AMZN’s 3-Month Price Performance
Image Source: Zacks Investment Research
AWS Reacceleration and the AI Build-Out
Amazon Web Services posted 24% year-over-year revenue growth in the fourth quarter of 2025, reaching $35.6 billion, with operating income rising to $12.5 billion from $10.6 billion in the prior-year period. This reacceleration underscores robust enterprise demand for cloud and AI services, reinforcing AWS as the company's primary profit engine — and a growing one. Full-year 2025 AWS revenues reached $128.7 billion, reflecting a multi-year compounding growth trajectory. Amazon's Bedrock platform, which helps enterprises build and run generative AI applications, has become the fastest-growing service in AWS history, with customer spending growing 60% from one quarter to the next as of the most recent earnings call.
In April 2026, AWS continued expanding globally through AWS Summits — free in-person developer events across cities including Paris, London and Bengaluru — signaling sustained enterprise and developer demand. Amazon also launched Amazon Connect Health, an agentic AI platform for healthcare administration, now generally available, further broadening the company's AI services portfolio.
To sustain its infrastructure lead, management guided for approximately $200 billion in capital expenditures in 2026 — a 53% increase from $131.8 billion in 2025 — predominantly directed at AWS and AI capacity. While this signals long-run conviction, the spending surge has sharply compressed free cash flow from $38.2 billion to $11.2 billion, raising valid questions about near-term financial flexibility that investors should not overlook.
Prime and E-Commerce Resilience
Amazon's Prime membership program remains one of its most durable competitive advantages, supported by a growing portfolio of retail, media and healthcare offerings. In March 2026, Amazon hosted its annual Big Spring Sale from March 25 through March 31, offering discounts of up to 50% off, with exclusive Prime Spring Deals for members. The event featured Rufus, Amazon's AI shopping assistant, which can help users discover deals, track price history and enable an Auto Buy feature that purchases items automatically at a target price. Amazon also introduced one-hour and three-hour delivery options across hundreds of U.S. cities, further sharpening its logistics edge. Amazon also launched Alexa+ — its next-generation AI assistant — as a no-cost Prime benefit in the United States, deepening the program's value proposition.
Advertising services revenues grew 23% year over year to $21.3 billion in fourth-quarter 2025, driven in part by the expansion of ad-supported tiers on Prime Video, adding a high-margin revenue layer to the subscription model. North America segment revenues grew 10% to $127.1 billion in fourth-quarter 2025, while international segment revenues rose 17% to $50.7 billion.
Guidance Points to Growth, but Near-Term Pressures Remain
For the first quarter of 2026, Amazon guided net sales between $173.5 billion and $178.5 billion, representing year-over-year growth of 11% to 15%, with operating income projected in the range of $16.5 billion to $21.5 billion compared with $18.4 billion in first-quarter 2025. Management flagged approximately $1 billion in incremental year-over-year costs tied to Amazon Leo — the company's satellite Internet initiative now offering connectivity to enterprise and AWS customers — alongside investments in quick commerce and international pricing.
For 2025, net sales reached $716.9 billion, up 12% year over year, reflecting solid top-line momentum. The Zacks Consensus Estimate for AMZN's 2026 earnings is pegged at $7.78 per share, indicating an 8.51% increase from the year-ago figure.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
That said, one-time charges in fourth-quarter 2025, including $1.1 billion in tax dispute resolution, $730 million in severance costs and $610 million in asset impairments, underscore that the road to sustained margin expansion may remain bumpy in the quarters ahead.
Valuation and Competitive Landscape
From a valuation standpoint, AMZN trades at a forward 12-month price/earnings ratio of 27X, a premium to the industry's 22.96X. Amazon's Value Score of C suggests limited near-term valuation support.
AMZN’s Premium Valuation
Image Source: Zacks Investment Research
In the cloud, Amazon leads, though Microsoft (MSFT - Free Report) , with its Azure platform and OpenAI partnership, continues to gain ground. Amazon, Microsoft and Alphabet’s (GOOGL - Free Report) fourth-quarter 2025 worldwide market shares were 28%, 21% and 14%, respectively, according to new data from Synergy Research Group. Google Cloud has positioned itself as an AI-native rival, and Oracle (ORCL - Free Report) is winning enterprise workloads with its database and cloud infrastructure strength. As Microsoft, Google and Oracle intensify their cloud and AI ambitions, Amazon's capacity to sustain AWS' growth lead will be a defining factor for AMZN's long-term investment case in 2026.
Conclusion
Amazon's long-term growth levers — spanning cloud, AI, advertising and Prime — remain structurally intact, but the company's aggressive capital spending cycle and near-term margin pressures warrant patience. Current shareholders would be well-served holding their positions, while new investors may benefit from awaiting a more compelling entry point before adding exposure. Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.