Cathie Wood Is Still Buying Amazon Stock. Should You?

In the last 52 weeks, the price action in Amazon (AMZN) stock has been volatile, with the stock remaining largely sideways. A major reason for the markets being skeptical is the massive capital expenditure plan related to global data centers.

Last year, McKinsey estimated that by 2030, “data centers are projected to require $6.7 trillion worldwide to keep pace with the demand for compute power.” With Amazon being among the top four hyperscalers, the investment is likely to remain elevated through 2030.

However, as Amazon continues to grow and deliver robust cash flows, there appears to be a buying opportunity. Recently, Cathie Wood’s ARK Invest bought over 129,000 shares of Amazon. The snapping-up of AMZN shares seems well timed. With a record cloud backlog, Amazon is positioned for growth and value creation.

Headquartered in Seattle, Amazon is among the tech giants with a market valuation of $2.3 trillion. The company is involved in the sale of consumer products through online and physical stores globally.

Amazon operates through three segments that include North America, International, and Amazon Web Services (AWS). The company also manufactures and sells hardware devices such as Kindle, Fire tablet, Fire TV, and Echo, among others.

For FY25, Amazon reported revenue of $717 billion, with North America contributing to 59% of the total revenue. Further, International and AWS contributed to 23% and 18% of the revenue, respectively.

Even with steady financial performance, AMZN stock has declined by 8% in the last six months. The key reason is a significant amount of capital expenditure to build the AI infrastructure. For FY25, the total capex was almost $132 billion. However, this factor seems to be discounted in the stock price.

Since Amazon is incurring significant capex, it’s important to talk about the financial flexibility. As of FY25, Amazon reported a cash buffer of $123 billion. Further, even with $132 billion in capital expenditure, Amazon reported free cash flow of $11.2 billion.

Therefore, financing data center investments is unlikely to be a concern, and these investments will yield results in the next few years. As an example, OpenAI will be consuming “2 gigawatts of Trainium capacity” through AWS infrastructure. It’s worth noting that Amazon’s deal with OpenAI has already expanded from $38 billion to $100 billion over the next eight years.

Further, as of FY25, AWS had a backlog of $244 billion, which is higher by 40% on a year-on-year (YoY) basis. As the backlog continues to swell, it provides clear revenue and cash flow visibility. The impending growth potential is also indicated by the point that Amazon is planning to double AWS capacity by 2027.

For Q1 FY26, Amazon expects net sales in the range of $173.5 billion to $178.5 billion. This would imply YoY growth of 11% to 15%. With the backlog, it’s likely that growth will be sustained through FY26.

Based on 57 analysts with coverage, AMZN stock is a consensus “Strong Buy.” While 49 analysts assign a “Strong Buy” rating, five analysts have a “Moderate Buy” rating, and three analysts have a “Hold” rating.

Analysts have a mean price target of $284.75, implying about 34% potential upside from here. Further, the most bullish price target of $360 suggests that AMZN stock could rise as much as 70% from current levels.

Among the recent analyst views, Barton Crockett, senior analyst at Rosenblatt Securities, believes that hyperscalers have reached “peak negativity” related to massive spending. The narrative for Amazon, Alphabet (GOOG) (GOOGL), Meta (META), and Microsoft (MSFT) is therefore likely to “improve as spending levels stabilize.”

Additionally, Mark Mahaney, Evercore ISI head of internet research, has named Amazon as his top pick in the technology sector. The correction from highs therefore seems like a good accumulation opportunity. Further, AMZN stock trading at an attractive forward price-earnings ratio of 28.15 underscores the overwhelmingly bullish view of analysts.

On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com