Huge AI investments raise market concerns; Amazon(AMZN.US) stock has a poor start this year; Wall Street still considers it an "undervalued winner."

The WisdomTree Finance APP reports that Amazon (AMZN.US) stock has had a difficult start to the year, but some Wall Street analysts see this pullback as a potential buying opportunity for investors optimistic about the long-term returns of artificial intelligence (AI).

Even with a preliminary rebound in the stock this week, Amazon has declined a total of 9.2% over the past 12 months, significantly underperforming the Nasdaq Composite Index, which has risen about 13% in the same period. Since releasing its earnings report on February 5, concerns over earnings falling short of expectations and large-scale AI capital expenditure plans have caused Amazon’s stock to fall another approximately 7.5%.

Investors are generally worried that, although tech giants including Amazon are investing billions of dollars into building AI infrastructure, the returns on these investments have yet to fully materialize. The company expects capital expenditures to reach about $200 billion in 2026, a substantial increase from $131.8 billion in 2025. Meanwhile, Amazon’s fourth-quarter earnings per share came in at $1.95, slightly below Wall Street expectations, further fueling market caution.

However, this anxiety over AI spending has led to a noticeable decline in Amazon’s valuation. Currently, the stock’s forward 12-month price-to-earnings ratio is about 25.8, significantly lower than its five-year average of 48.1. Morgan Stanley analyst and head of tech research Brian Nowak warned clients in a report on Wednesday that Amazon itself has a strong business that can directly benefit from capital expenditure expansion—Amazon Web Services (AWS).

Nowak stated that AWS is “an undervalued generative AI winner” and emphasized that demand for cloud computing services continues to be a key growth driver for the company. During the earnings call on February 5, management disclosed that the company’s unfulfilled contractual obligations (backlog) have reached $244 billion, a 40% year-over-year increase.

He also pointed out that, like other cloud service providers, Amazon is still constrained by capacity. Continuing to expand data centers to meet growing demand will help further drive business growth, but it also entails high capital investments. “That’s why we remain optimistic about AWS’s accelerated capital expenditure expansion,” Nowak wrote. He has a “buy” rating on Amazon with a target price of $300, implying more than 45% upside from current levels.

Overall, Wall Street remains relatively optimistic about Amazon. According to FactSet, out of 72 analysts covering the stock, 66 have a “buy” rating, with only 6 recommending “hold.”

However, AI investments are changing market perceptions of the tech giant’s cash flow capabilities. Amazon disclosed in February that, over the past 12 months ending in Q4, free cash flow was $11.2 billion, significantly below the $38.2 billion recorded in the same period last year. LPL Financial chief stock strategist Jeff Buchbinder noted in a report on February 12 that as AI capital expenditure becomes a long-term theme, investors will pay closer attention to companies’ guidance on free cash flow prospects. He also added that market consensus still points to “positive but volatile cash flow growth.”

Recent trends suggest some investors may have begun to rebuild confidence in this e-commerce and cloud computing giant. Amazon’s stock closed higher on Tuesday, ending a nine-day losing streak—the longest since July 2006. On Wednesday, the stock continued to rise about 1.8%, closing at $204.79.

Notably, despite the rebound, a 13F filing disclosed Tuesday night showed that Warren Buffett’s Berkshire Hathaway (BRK.A.US, BRK.B.US) had reduced its Amazon holdings by about 80%, to 2.3 million shares. However, this news did not prevent the stock from experiencing a short-term rally.