Amazon (NASDAQ: AMZN) has been one of the biggest megacap underperformers of 2026, rising only modestly while AI-focused stocks raced significantly higher around it.
The lag is striking because Amazon’s underlying business is arguably performing better than it has in years, with multiple segments hitting record figures simultaneously.
Amazon Web Services, the company’s most critical profit engine, grew revenue 28% year over year to $37.6 billion in the first quarter of 2026, its fastest growth rate in 15 quarters.
That puts AWS on roughly a $150 billion annual revenue pace, a scale that few technology businesses anywhere in the world can match.
AWS generated $14.2 billion in operating income at a 37.7% margin during the quarter, making it the dominant driver of Amazon’s overall profitability despite representing a fraction of total revenue.
Total company revenue climbed 17% to $181.5 billion, while operating income jumped to $23.9 billion, producing an operating margin of 13.1%, a record high for Amazon.
North America revenue rose 12% to $104 billion, international grew 19%, and the high-margin advertising business continued expanding at a double-digit rate, quietly boosting overall margins further.
Amazon’s custom AI chip business is also gaining momentum, now running at more than a $20 billion annual revenue pace and growing at triple-digit rates as customers seek cheaper alternatives to expensive GPUs.
The single biggest drag on investor sentiment is capital expenditure, with Amazon pouring $44.2 billion into capital projects in the first quarter alone, up sharply from $25 billion in the same period a year earlier.
That spending surge has nearly wiped out free cash flow, which fell to approximately $1.2 billion over the trailing 12 months, down from nearly $26 billion previously.
Investors are essentially being asked to trust that today’s aggressive infrastructure buildout will generate the same kind of returns that AWS and Amazon’s logistics network eventually delivered after earlier heavy investment cycles.
At approximately $244 per share as of the time of writing, Amazon trades at roughly 29 times earnings, sitting about 12% below its 52-week high.
That multiple is not a deep-value price, but it represents a meaningful discount to levels where the stock has frequently traded in the past, given the pace of profit growth across the business.
The AI reacceleration at AWS is a genuine fundamental catalyst, as companies increasingly prefer to train and run their models where their existing data already resides, which for many means AWS infrastructure.
For patient investors willing to absorb continued free cash flow pressure during the infrastructure buildout phase, Amazon’s current weakness may represent a compelling entry point into a market-leading business performing well across multiple fronts.
