Amazon (AMZN) has struggled to keep pace with the broader market this year, with shares up roughly 8% year-to-date and just 10% over the past 12 months. This underperformance comes as investor sentiment toward hyperscalers has cooled amid concerns over massive capital expenditures and the timeline for returns on AI investments.
Capital Spending Weighs on Sentiment
The company has been investing heavily in data center infrastructure, with plans to spend over $200 billion this year. Costs for memory, servers, and chips continue to rise, adding pressure on free cash flow. In the trailing twelve months, Amazon's free cash flow dropped to $1.2 billion, a sharp decline that has raised eyebrows among investors.
Despite these headwinds, Amazon's core business segments have shown resilience. In the first quarter, total revenue rose 17% year-over-year to $181 billion (15% excluding forex). International sales climbed 19%, North America retail grew 12% to $104 billion, and AWS surged 28% to $37.8 billion. Operating income reached $23.9 billion, with AWS contributing $14.2 billion.
Q2 Earnings: A Potential Catalyst
Amazon is scheduled to report second-quarter earnings on July 30. Analysts expect revenue to increase 16.8% to over $195 billion, with AWS growing approximately 25%. The cloud division's performance will be closely watched, as it remains a key driver of profitability and a bellwether for enterprise AI adoption.
For the full year, revenue is projected to hit $823 billion, up 15%, followed by $930 billion in 2026. However, valuation remains a concern: Amazon's forward P/E ratio stands at 29, nearly double the sector median of 15.
Wall Street Remains Bullish
Most analysts maintain a positive outlook. The average price target is $312, implying about 25% upside from current levels. KeyCorp is among the most optimistic with a $335 target, while Wedbush, Citigroup, and Citizens rate the stock Outperform, Buy, and Market Outperform, respectively.
Amazon's chip business—comprising Graviton, Trainium, and Nitro—has reached a $20 billion annual revenue run rate. The company also secured a deal with OpenAI to consume about 2 GW of Trainium capacity, signaling strong demand for its custom silicon.
Technical Setup Suggests Near-Term Rebound
From a technical perspective, AMZN has recovered from a low of $225 earlier this month to around $250. The stock has crossed above its 50-day and 100-day moving averages and formed an inverted head-and-shoulders pattern. It is currently trading near the 23.6% Fibonacci retracement level. If momentum continues, the next key resistance is the year-to-date high of $278.
As investors rotate from memory and semiconductor stocks back into hyperscalers, Amazon could benefit from renewed interest. The upcoming earnings report will be a critical test of whether the company can justify its valuation and spending trajectory.
For broader market context, see our coverage of Dow Futures Rise 130 Points as Markets Weigh Earnings, Chip Weakness, and Key Data and Netflix Stock Down 20% in 2026: Can Q2 Earnings Spark a Reversal?.
This article is for informational purposes only and does not constitute financial advice.
