Amazon Stock: Analysts See Undervalued Opportunity Amid AI Growth and Bezos Share Sales
On Wednesday, Amazon (NASDAQ: AMZN) finished at $240, down 1.84%. Investors evaluated the company's good operational performance against the
Quick overview
- Amazon's stock closed at $240, down 1.84%, as investors reacted to Jeff Bezos's recent stock sales totaling $666 million.
- Despite recent stock declines, analysts are optimistic about Amazon's fundamentals, citing strong operational performance and AI adoption.
- Amazon Web Services (AWS) continues to thrive, with a 17% revenue increase and operational margins reaching an all-time high of 39.5%.
- Financial analysts view Amazon's current valuation as attractive, suggesting potential for significant growth as AI capabilities expand.
On Wednesday, Amazon (NASDAQ: AMZN) finished at $240, down 1.84%. Investors evaluated the company’s good operational performance against the revelation that founder Jeff Bezos had sold a large amount of stock. Even though the stock has dropped recently, financial analysts are becoming more positive about the e-commerce and cloud computing behemoth, saying that its fundamentals are undervalued and that artificial intelligence is being adopted more quickly.
Bezos Continues Systematic Share Reduction
SEC filings show that the founder and executive chairman of Amazon sold around $666 million worth of company stock over the course of two days in early July. The deal included about 3 million shares and is part of a plan that lets Bezos sell up to 25 million shares by May 2026. At current rates, that stake is worth about $4.75 billion.
The sale’s timing, which came soon after Bezos’s high-profile $50 million wedding to Lauren Sanchez in Venice, has gotten a lot of attention in the market. Analysts, on the other hand, stress that Bezos is still Amazon’s biggest shareholder, with more than 900 million shares worth over $200 billion. The sales are a way for him to spread his investments rather than a sign of a lack of faith.
Strong Operational Performance Drives AMZN’s Bullish Sentiment
Even though the stock has been poor lately, investors are happy with how well Amazon is doing in general. The company’s earnings for the first quarter of 2025 showed strong growth in all of its main areas. Retail sales were up 9% year over year, and operating income was up 20%, even though the economy was not doing well.
Amazon Web Services (AWS), the company’s cloud computing segment, is still doing very well, with revenue rising 17% to $29.3 billion. More importantly, AWS’s operational margins reached an all-time high of 39.5% in Q1, thanks to strict cost control and the fact that AI workloads have strong margins.
Lakehouse Capital, an investment manager, said, “AWS grew 17% to $29.3 billion, which was a slight slowdown from the 19% growth last quarter.” “Even though this seems disappointing at first, management said again that demand is very strong and they are still limited in capacity.”
AI Emerges as Key Growth Driver
Artificial intelligence is a big part of Amazon’s growth story. The company’s AI workloads on AWS are rising by more than 100% per year. New services like AWS Bedrock are adding complex models like Anthropic’s Claude 3.7 Sonnet and Meta’s Llama 4.
Amazon’s own AI breakthroughs, such the Ocelot quantum chip and the Nova series models that focus on speech-to-speech and coding applications, are getting more and more business. The company’s AWS backlog grew by 20% year over year to $189 billion, which means that future revenue looks good.
Valuation Opportunity at Current Levels
Financial analysts think that Amazon’s current price of $240 is a great deal. The stock trades at 25 times its expected earnings per share of $9.6 in 2025. This is less than its 10-year average of 35 times and less than Microsoft, which trades at 30 times its future price-to-earnings.
“Amazon is worth $240, which is 25 times its 2025E EPS of $9.6. Analyst Rhys Northwood commented, “This is a lot lower than its 10-year average of 35x or its competitors like Microsoft (Azure, 30x forward P/E).” “A premium is justified because of AWS’s AI growth and Prime’s pricing power.”
If AWS’s margins go up to 40% by 2026, up from 39.5% now, earnings per share might go beyond $12, which could raise fair value to $350 or more.
Dual-Engine Growth Model Intact
Amazon’s dual-engine growth plan keeps its competitive advantages strong. The Prime ecosystem has 85% of U.S. households, which creates a strong flywheel effect of keeping customers and getting them to spend more. AWS, on the other hand, has a 36% share of the cloud industry, which it uses to its advantage by being big and cheap.
The research company Morningstar talked about Amazon’s “wide moat” in retail, which comes from network effects, cost advantages, and better technology. The company thinks that Amazon’s retail sector will keep increasing market share online, and that AWS will benefit from higher switching costs and economies of scale.
Managing Growth Investments
Amazon’s capital expenditures has reached $88 billion over the past 12 months, an increase of 80% over the previous year. However, management says this is a strategic investment and not wasteful spending. The company’s $4 billion investment in rural service and the Project Kuiper satellite internet project are both seen as long-term advantages over competitors.
Analysts think that free cash flow will stabilize during the years 2026 and 2027, even while capital expenditures are momentarily high. This is because investments in infrastructure and AI-driven efficiency gains will start to pay off.
Amazon (AMZN) Outlook and Investment Thesis
Amazon looks like it will keep growing because it has excellent operational momentum, more AI capabilities, and what experts think are good valuation levels. The company’s ability to mix investments in growth with higher profit margins, as seen by its Q1 results, gives us more faith in management’s ability to do their job.
Analyst Northwood said, “Amazon’s moats are getting bigger, not smaller.” “The AI/Cloud tailwind is structural, and the fact that margins held up in Q1 shows that management can balance growth and profit.”
As Amazon adapts to the changing world of e-commerce and cloud computing, its $240 stock price may be a good place for long-term value investors to start in the AI-driven economy.
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