Prediction: Amazon's Sell-Off Will Set Up a Monster Rebound in 2026

Earnings seasons tin sometimes beryllium rough. We're seeing it this clip astir with respective AI stocks. Advanced Micro Devices' (NASDAQ: AMD) and Microsoft's (NASDAQ: MSFT) shares plunged aft its caller quarterly update. Google genitor Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) banal declined moderately contempt reporting awesome results.

Amazon (NASDAQ: AMZN) has present joined the club. Shares of the e-commerce and unreality services elephantine fell astir 6% connected Friday pursuing the company's fourth-quarter update Thursday evening. I person a prediction, though: Amazon's sell-off volition acceptable up a monster rebound successful 2026.

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Two factors caused Amazon's diminution pursuing its latest quarterly update. First, the institution missed Wall Street's net estimate. Second investors didn't similar that Amazon forecasts superior expenditures of $200 cardinal this year, a large leap from the 2025 capex of astir $132 billion. However, I deliberation Amazon's sell-off reflects a classical marketplace overreaction.

Let's commencement with the net miss. To beryllium sure, Amazon's reported net per stock (EPS) of $1.95 successful Q4 was somewhat little than the $1.97 expected by analysts. But it's important to enactment the company's net fig successful context. Amazon recorded peculiar charges that reduced its operating income by $2.4 billion. By my calculations, these peculiar charges lowered the company's EPS by astir $0.22. Also, Amazon's reported gross of $213.4 cardinal easy bushed Wall Street's estimation of $211.3 billion.

I fishy the bigger contented was Amazon's projected capex for 2026. Analysts surveyed by FactSet were expecting superior expenditures successful the ballpark of $147 billion. Is Amazon's monolithic spending summation worrisome? I don't deliberation so.

Most of the capex volition spell to Amazon Web Services (AWS). However, Amazon CEO Andy Jassy had a bully mentation for the accrued investments connected the Q4 net call, stating, "[W]e person precise precocious demand. Customers truly privation AWS for halfway and AI workloads."

Investments aren't atrocious erstwhile they make coagulated returns. Jassy said that Amazon is "monetizing capableness arsenic accelerated arsenic we tin instal it." He added, "We person heavy acquisition knowing request signals successful the AWS concern and past turning that capableness into beardown instrumentality connected invested capital. We are assured this volition beryllium the lawsuit present arsenic well." I'm assured successful Amazon's quality to present exceptional ROIC, too.