Amazon (AMZN) stock opened down nearly 10% on Feb. 6, after a slight earnings miss and disappointing capital expenditure (capex) guidance spooked investors, despite an otherwise positive fourth-quarter release.
The Nasdaq-listed company now plans to spend around $200 billion this year, primarily on artificial intelligence (AI) infrastructure. That figure is well ahead of the roughly $146 billion analysts expected.
This surprise triggered a sharp sell-off that pushed AMZN’s Relative Strength Index (RSI) into the 20s, indicating deeply oversold conditions.
Compared to its year-to-date high, Amazon stock is now down just under 20%.
It’s reasonable to treat this post-earnings weakness as a buying opportunity, given that AMZN earned cloud revenue, a springboard that many believe can single-handedly trigger a multi-year rally in its stock price.
At $35.58 billion, Amazon Web Services not only beat estimates; blew them away in the fourth quarter, reinforcing that the company is not spending blindly on AI. Your investments are already generating profits.
More importantly, the Seattle-based company “has the potential to build more cloud capacity than any of its big rivals over the next 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 also worth owning for the strength of its high-margin advertising business, which brought in a whopping $21.32 billion in the fourth quarter.
Additionally, the company’s custom chips are seeing triple-digit growth, according to CEO Andy Jassy, helping to reduce costs and capture AI spending that would otherwise go to Nvidia (NVDA).
What’s also worth mentioning is that despite a 40% year-over-year increase in AWS’s backlog to $244 billion, Amazon stock is going for less than 30 times forward earnings.
This makes them relatively cheaper than some of the other “Magnificent 7” names like Apple (AAPL) and Nvidia.
Investors should also note that Wall Street remains bullish on AMZN stock after the fourth quarter release.
