Key Points
The stock is under pressure due to the company’s $200 billion capital spending budget.
Rising infrastructure costs are taking a major toll on Amazon’s free cash flow.
Investors question the company’s ability to sustain its spending efforts.
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It’s been an interesting start to the year for software stocks. Throughout January, several high-growth software developers — namely, major cloud service providers — continued to exhibit strong momentum on the heels of ongoing demand for artificial intelligence (AI).
However, these dynamics have swiftly changed over the last couple of weeks. The irony is that the culprit behind the sell-off in software stocks is… AI. So far in 2026, shares of Amazon (NASDAQ: AMZN) have slumped 11%. In the month of February, though, the decline has been even more pronounced — with shares dropping by roughly 15%.
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Let’s dig into why Amazon has turned into a laggard during the “SaaSpocalypse” and assess if now is an opportunity for smart investors to buy the dip or run for the hills.
Image source: Getty Images.
Why is Amazon stock plummeting?
Earlier this month, Amazon reported earnings for the fourth quarter and full year 2025. The company’s e-commerce segment posted impressive results driven by resilient consumer spending throughout the holiday season.
Moreover, Amazon Web Services (AWS) surprised everybody with a much-needed re-acceleration across the top line as competition in the cloud wars heats up against Microsoft Azure and Google Cloud Platform (GCP).
Nevertheless, Wall Street found a reason to sell Amazon stock despite the company’s robust operating results. The reason? Because management guided for annual spend of up to $200 billion in capital expenditures (capex) this year. This came in well above analyst expectations of roughly $150 billion in capex.
Amazon’s free cash flow is under pressure — and Wall Street doesn’t like that
The drivers behind Amazon’s accelerating capex all has to do with AI. The company is building data centers, designing its own custom training and inferencing chips, building low-orbit satellites, and making strategic investments in generative AI developers (more on that later).
In 2025, Amazon’s revenue increased 12% year over year to $717 billion while earnings per share (EPS) rose by about 30%. While this looks solid, Wall Street is starting to sweat over Amazon’s cash-flow profile.
Last year, Amazon’s trailing-12-month free cash flow decreased by a whopping 71% from $38.2 billion in 2024, to just $11.2 billion at the end of 2025. Per management’s commentary, the primary catalyst behind this drop was continued investments in AI.
As the trends above indicate, Amazon’s excess cash flow is decelerating at a much faster pace than the company’s profitability growth. Against this backdrop, Wall Street is increasingly viewing Amazon’s capex spending spree as a potentially irresponsible use of capital allocation.
Anthropic: Amazon’s hidden catalyst that no one is talking about
Shortly after Microsoft made an investment in OpenAI in early 2023, Amazon followed suit with its own investment in a competing platform called Anthropic. Anthropic develops a large language model (LLM) called Claude, which competes heavily with ChatGPT.
Over the last few years, Anthropic has become tightly integrated into AWS. Anthropic has trained its generative AI models using Amazon’s custom Trainium and Inferentia chips, and has helped augment next-generation products within the AWS ecosystem, such Amazon Bedrock.
Ever since hyperscalers like Microsoft, Amazon, and Alphabet integrated LLMs into their cloud services, revenue and operating income growth have been on the rise. The caveat is that this growth took some time to manifest.
During the fourth quarter, AWS reported revenue of $35.6 billion — putting this segment of Amazon’s business on a $142 billion annual revenue run rate. Indeed, AWS’ growth of 24% year over year was its highest in over three years.
While growth from AWS is not outpacing that of Amazon’s rising capex budget, the company has proven that it can profitably monetize AI in a meaningful way. In my eyes, generative AI represented phase one of the AI revolution. Now, big tech is moving toward infrastructure build-outs as the next frontier that will give birth to next-generation services across robotics, autonomous systems, agentic AI, and more.
While Amazon’s free cash flow will almost certainly continue to decline in the short term, the long-term AI-driven payoffs from the company’s ongoing infrastructure investments should far outweigh these concerns. Nevertheless, investors just can’t seem to look at the bigger picture; hence, Amazon stock is trading near its cheapest level in a decade based on forward price-to-earnings (P/E) trends.
AMZN PE Ratio (Forward) data by YCharts
While the company’s profitability profile may be squeezed for the time being, these dynamics should be relatively short-lived. Meanwhile, as shares continue to slide, smart investors understand that Amazon’s position in the AI realm remains firmly supported by Anthropic, among other investments — making the company’s long-term prospects especially compelling.
For these reasons, I see now as a no-brainer opportunity to buy the dip in Amazon stock.
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Adam Spatacco has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. 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.
