Amazon Stock Traders Baffled by Low Valuation Amid Strong Growth

Amazon's stock price has been puzzling investors with its low valuation despite strong revenue growth. The e-commerce giant reported a 20% increase in net sales, surpassing the double-digit growth rate of 2025. However, its forward P/E ratio has fallen to just 22, which would have been unthinkable in Amazon's earlier years.

The main reason for this low valuation is likely Amazon's massive capital expenditures (capex). In the second quarter of 2026, the company announced it would increase capex spending to $220 billion, up from the $200 billion estimate in the prior quarter. This surge was largely due to the unprecedented shortage of memory chips, which drove prices up.

The increased capex has put a strain on Amazon's balance sheet, with free cash flow falling to -$7.6 billion over the trailing 12 months (TTM). This is down from $18.2 billion in TTM free cash flow in the year-ago quarter. Long-term debt also rose by 96% over the previous year to almost $129 billion.

Despite these concerns, Amazon's net sales growth has accelerated, and its cloud computing arm, Amazon Web Services (AWS), saw a 37% increase in revenue. This could convince investors that the 22 forward P/E ratio is an overreaction and encourage them to add to their positions.