Amazon Stock Plunges Amid Concerns Over Valuation and Capital Expenditures
Amazon's stock price has been on a rollercoaster ride lately, and analysts are divided on whether it's a buy, hold, or sell. The company's cloud business, Amazon Web Services (AWS), is accelerating at its fastest pace in 18 quarters, with a contracted backlog of nearly half a trillion dollars in future revenue.
However, despite this impressive growth, analyst earnings estimates for 2027 are actually lower than those for 2026. This has raised questions about what's behind the math and whether Amazon's stock is overvalued.
AWS posted its fifth consecutive quarter of acceleration, with a 28% growth in the March quarter and 36.7% in the June quarter. The company's segment operating income was $16.6 billion at a 39.4% margin, and AWS has already reserved 2027 capacity.
But despite this impressive performance, Amazon's stock price has fallen 4.47% this month and returned only 45.6% over five years, while the AI trade made fortunes. The company's forward earnings multiple works out to roughly 24x, which is not obviously cheap for a company whose 2027 EPS is projected to be lower than 2026's.
Amazon has also been criticized for its high capital expenditures, which have pushed trailing free cash flow to negative $7.6 billion. However, management says servers break even in under three years and data centers monetize for thirty-plus years, which could justify the spending if those numbers hold.