The S&P 500 is down 3% so far this year due to inflation, a lack of interest rate cuts, rising conflict in the Middle East and other macro headwinds. Yet the S&P 500 is still up nearly 70% over the past five years, so this is really just a mild pullback.
Nonetheless, long-term investors should always view market corrections as an opportunity to accumulate more shares of well-run blue-chip companies. One of the stocks is Amazon (NASDAQ: AMZN)down 10% so far this year.
Will artificial intelligence create the world’s first trillionaire? Our team just released a report on a little-known company that has been described as an “essential monopoly” that provides critical technology that both Nvidia and Intel need. continue”
Amazon is the world’s largest e-commerce and cloud infrastructure company. It has also become a major digital advertising platform through its promoted listings and integrated advertising.
Amazon generates most of its revenue from its retail business, but most of its profits come from its cloud platform, Amazon Web Services (AWS). Amazon’s higher-margin cloud revenue allows it to expand its retail business through a lower-margin, loss-leading strategy. This unique combination has widened its moat and helped it lock in more than 240 million Prime members worldwide with exclusive discounts, free shipping, streaming capabilities and other perks.
Analysts expect Amazon’s revenue and earnings per share to grow at a compound annual growth rate of 12% and 18%, respectively, from 2025 to 2028. Its retail business should continue to grow as its logistics network upgrades and expands to more countries. AWS will continue to profit from the long-term expansion of its cloud infrastructure, data center and artificial intelligence (AI) markets.
However, Amazon’s plan to increase its capital spending from $131.8 billion in 2025 to $200 billion in 2026, primarily to expand its cloud and artificial intelligence infrastructure, is chasing away bulls. The increase in spending will further reduce its free cash flow (FCF) – which has plummeted 69% through 2025 – and lower its FCF yield, which many investors use to value high-growth companies. It could also squeeze its near-term operating profits.
While Amazon’s stock looks reasonably valued at 27 times next year’s earnings, it won’t be priced high enough to attract bargain hunters as long as its free cash flow and margins remain under pressure. But if you expect your Amazon investments to pay off — as they have in the past — then it’s still a good idea to accumulate more shares while growth investors shy away from its shares.
