Amazon Stock Hits Historic Low Amid Legal and AI Spending Concerns

Amazon (AMZN) has seen its stock valuation drop to historically low levels, trading near $251 per share and at roughly 20 times trailing earnings. This marks the lowest valuation for the e-commerce and cloud giant since it went public. Despite this discount, competitors like Nvidia (NVDA) and AMD (AMD) have reached record highs.

The drop in Amazon's valuation is partly due to legal uncertainty surrounding its advertising business. In September, the Federal Trade Commission and 22 states sued Amazon, alleging that the company overcharged approximately 1.2 million advertisers by about $20 billion since 2019. Amazon disputes these claims, arguing that advertisers benefit significantly from its platform. Nevertheless, the legal threat has made investors cautious about future profits, especially since advertising is one of Amazon's most profitable sectors.

Another factor contributing to Amazon's lower valuation is its massive spending on AI infrastructure. The company recently raised its expected 2026 capital spending to about $220 billion, primarily to expand its AWS data centers and AI capabilities. Analysts, such as Evercore ISI's Mark Mahaney, predict this spending could rise further, reaching $320 billion in 2027 and $370 billion in 2028. This increased expenditure is expected to push Amazon's free cash flow into negative territory, potentially reaching negative $50 billion in those years.

Despite these challenges, there are signs that demand for Amazon's services remains strong. The company recently raised prices for some Nvidia GPU rental capacity by 15%, and CEO Andy Jassy has noted that AWS cannot meet all customer demand despite substantial investments. Wall Street analysts maintain a Strong Buy consensus rating on AMZN stock, with an average price target of $331.82, suggesting a 31.8% upside potential.