Amazon (AMZN) stock opened nearly 10% down on Feb. 6, after a slight profit miss and daunting capital expenditures (capex) guidance spooked investors, despite an otherwise positive Q4 release.
The Nasdaq-listed firm now plans on spending about $200 billion this year, mostly on artificial intelligence (AI) infrastructure. That number is miles ahead of the roughly $146 billion that analysts had expected.
This surprise triggered a sharp selloff that pushed AMZN’s relative strength index (RSI) into the high 20s, indicating deeply oversold conditions.
Versus its year-to-date high, Amazon stock is now down a little under 20%.
It’s reasonable to treat this post-earnings weakness as a buying opportunity given that AMZN delivered on cloud revenue — a springboard many believe can singlehandedly trigger a multi-year rally in its stock price.
At $35.58 billion, Amazon Web Services didn’t just beat estimates; it blew them away in the fourth quarter, reinforcing that the company isn’t spending blindly on AI. Its investments are already generating returns.
More importantly, the Seattle-headquartered firm “has the potential to bring on more cloud capacity than any of its big rivals in the coming two years,” Bernstein analyst Mark Shmulik told clients in a recent report. This makes AMZN stock even more attractive as a long-term holding.
Amazon is worth owning for the strength of its high-margin advertising business as well, which raked in a whopping $21.32 billion in Q4.
Additionally, the company’s custom chips are seeing triple-digit growth, according to CEO Andy Jassy, helping lower costs and capture the AI spend that would otherwise go to Nvidia (NVDA).
What’s also worth mentioning is that despite a 40% year-on-year increase in AWS backlog to $244 billion, Amazon shares are going for less than 30x forward earnings.
This makes them relatively inexpensive than some of the other “Magnificent 7” names like Apple (AAPL) and Nvidia.
Investors should also note that Wall Street remains bullish on AMZN shares after the Q4 print.
