Amazon Stock Faces Uncertainty Despite Strong Core Business

Amazon's stock price has fallen by 10% over the past month to $255, which is about 10% below its 52-week high. Despite this decline, the company's second quarter of 2026 was a strong one, with revenue rising 20% year-over-year to $200.6 billion and operating income increasing by 43%. However, it's worth noting that $1.2 billion of the operating income came from tariff refunds and an energy-contract accounting gain.

The operating news for Amazon is actually quite positive, particularly in its cloud unit, AWS. Revenue grew 36.7% year-over-year, which management describes as the fastest in 18 quarters and a fifth straight quarter of acceleration. The cloud unit now runs at a $169 billion annualized rate with a $496 billion backlog behind it.

However, Amazon is facing higher costs, particularly for memory, which has increased its planned cash capital spending to around $220 billion for calendar 2026. This increase in expenses may lead to free cash flow headwinds until the new data centers open and their servers have been running for a few years.

Despite these challenges, Amazon's core business remains strong. Revenue over the trailing twelve months is up 15.8% year-over-year, and operating margin sits at 12.1%, above its three-year average of 9.7%. This suggests that Amazon is not paying its growth away through increased expenses.

Looking at Amazon's past performance during market shocks, the stock has historically fallen by an average of 20% peak to trough, which is higher than the overall market. The worst decline was a 62% fall in the 2008-2009 Global Financial Crisis. However, the recovery record is more encouraging, with the stock climbing back from all 15 major market shocks since 2007.