Key Points
Amazon remains a long-term compounder.
Its growth will be driven by AWS AI efforts, custom chips like Trainium, and massive capital expenditures backed by future demand.
Short-term performance is uncertain due to tariffs, retail margin variability, and heavy spending, making timing important.
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Amazon (NASDAQ: AMZN) stock will always be a buy, but it's not necessarily one right now. The company's long-term investment case is as strong as it has ever been. Artificial intelligence (AI)-related revenue through Amazon Web Services (AWS) now exceeds a $15 billion annualized run rate; there is a $200 billion capital expenditure program underway; and custom Trainium chip sales are growing at triple-digit rates year over year.
But patient investors should be prepared for sideways-to-lower trading in the near term as the company works through a heavy spending cycle and tariff headwinds.
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AWS is becoming the backbone of enterprise AI
Amazon's most important business isn't just its retail operation; it's the cloud. AWS generated roughly $36.8 billion in revenue based on Q1 2026 consensus expectations, and mid-20% growth is the baseline expectation heading into the full year. For context, Microsoft reported its AI business hit $13 billion in annualized revenue in late 2024; Amazon's is now larger at $15 billion and growing faster.
Image source: Getty Images.
The custom chip angle is an underappreciated lever. Amazon's Graviton and Trainium chip businesses now generate annual revenue above $20 billion, growing at triple-digit rates. Trainium3, a chip offering roughly four times the processing speed of its predecessor, is expected to ramp by mid-2026. That matters because custom silicon allows Amazon to serve AI workloads at lower cost than buying Nvidia GPUs wholesale, which expands margins structurally over time.
CEO Andy Jassy stated that the $200 billion in 2026 capital expenditures (capex) is backed by "substantial customer commitments expected to monetize in 2027 and 2028." This basically means that much of the spending has forward visibility, even if current-period free cash flow is compressed.
The near-term risks: Tariffs, spending, and margin compression
Here is the honest tension: Q1 2026 earnings results will be released on April 29, and analyst margin estimates have already widened dramatically. The North America retail operating profit margin consensus estimate sits at 6.5%, with individual estimates ranging from less than 1% to 7.8%.
Jassy noted publicly in January that tariff costs were "starting to feed through to some product prices." While a February Supreme Court ruling partially struck down some Trump administration tariffs and provided a brief tailwind for Amazon, the overall trade environment remains uncertain. Amazon has also been building forward inventory ahead of tariff implementation, buying goods in bulk to delay price increases for consumers, which creates a short-term cash drag.
The stock is currently priced at approximately $260, reflecting much of the AWS bull case, but hasn't fully accounted for the possibility that retail margin compression runs deeper than expected in the first half of 2026.
Hold or buy? It depends on your timeline
- If you have a 12-month horizon: Hold or wait for weakness. The near-term setup is clouded by tariff uncertainty, heavy capex, and a stock that has already recovered from its early 2026 lows. A share price move back toward the mid-$200s or below would represent a more attractive entry.
- If you have a three- to five-year horizon: Buy. The convergence of AWS AI monetization, custom silicon cost advantages, and retail automation savings (potentially $7.5 billion annually by the time automation is fully deployed) creates a compounding growth profile that most $2 trillion-plus companies cannot match.
New Street Research maintains a buy rating with a price target of $280, down slightly from $285 to reflect near-term AWS margin uncertainty. For investors without a position, the right move is to watch the April 29 earnings call. If AWS growth comes in at or above 25% and retail margins surprise to the upside, the case for buying immediately strengthens.
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Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
