Key Points
AWS growth accelerated in Amazon's latest quarter.
AI infrastructure spending is pressuring free cash flow.
The key question is whether investors can look through near-term investment costs and focus on long-term earnings power.
- 10 stocks we like better than Amazon ›
Major indexes were sliding Monday morning as recent news about tariffs has injected some uncertainty into the market. And this is on top of a software stock sell-off that has been gaining momentum in recent weeks. As investors are selling, are there any opportunities? After all, broad sell-offs like this can create great opportunities when high-quality businesses get pulled down with weaker names.
One stock I think investors may want to consider buying (albeit in moderation) on this sell-off is Amazon (NASDAQ: AMZN). The stock has been slammed even more than the broader market this year, declining about 12% year to date -- and that's after underperforming the S&P 500 in 2025.
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Despite the market's recent pessimism toward the stock, the e-commerce and cloud-computing giant just reported a strong fourth quarter, and the biggest near-term pressure point in the story -- elevated AI (artificial intelligence) investment spending -- looks more like short-term noise than a real issue.
Image source: Getty Images.
Strong results, even with investment pressure
Showing how the company continues to grow at an impressive rate despite its already-massive size, Amazon's fourth-quarter net sales rose 14% year over year to $213.4 billion, or 12% excluding foreign exchange, and Amazon Web Services (AWS) sales rose 24% to $35.6 billion.
Capturing a key part of Amazon's growth story, its cloud computing business, AWS, is seeing accelerating momentum. Its fourth-quarter revenue growth rate of 24% year over year was up from 20% in fiscal Q3 2025.
Amazon's operating income also moved higher during the period. Amazon reported fourth-quarter operating income of $25.0 billion, up from $21.2 billion a year earlier. And management said operating income would have been $27.4 billion without three special charges recorded in the quarter.
Management also pointed to broad strength across the business in the earnings release, highlighting faster AWS growth, robust double-digit growth in advertising and subscriptions, and steady momentum in its sprawling e-commerce operation.
Declining free cash flow: a red flag or not?
But there was one figure in the report that looked quite concerning at first glance: Amazon's free cash flow, or its cash flow from operations less capital expenditures, declined sharply year over year.
For the trailing 12 months, Amazon's operating cash flow rose 20% to $139.5 billion, but free cash flow fell to $11.2 billion from $38.2 billion. Amazon said the decline was driven primarily by a $50.7 billion year-over-year increase in capital expenditures, net of proceeds from sales and incentives, and that the increase primarily reflected investments in artificial intelligence.
But this can also be viewed as a good thing: Amazon has stumbled on a massive growth opportunity, and it's investing aggressively to capitalize on it.
"With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites," explained Amazon CEO Andy Jassy in the company's fourth-quarter earnings release, "we expect to invest about $200 billion in capital expenditures across Amazon in 2026, and anticipate strong long-term return on invested capital."
The risk is that spending stays high for longer than expected, and the payoff from that spending takes longer to show up in margins and free cash flow. In fact, Amazon's first-quarter 2026 shows this trade-off: It expects net sales of $173.5 billion to $178.5 billion, but operating income of $16.5 billion to $21.5 billion versus $18.4 billion in first-quarter 2025.
Why the dip can be a buying opportunity
The main reason I still think Amazon looks attractive amid this market sell-off is that the underlying business is producing enough profit and cash to fund a very large AI build-out while continuing to grow its core business.
Amazon's fourth-quarter 2025 results show a company with multiple engines still growing, including a faster AWS growth rate than in fiscal Q3 2025. Yes, there are risks, but after the recent sell-off, I believe those risks are largely priced in, and Amazon's underlying business quality and cash-generation capacity still look strong enough to justify buying on weakness.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. 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.
