Amazon (NASDAQ:AMZN) stock has frustrated investors this year, down about 14% as sentiment has weakened, pressured by concerns around elevated AI capex and AWS growth trailing that of competitors, while broader market jitters amid tensions with Iran have done little to support risk appetite. The stock has significantly underperformed both cloud and retail peers and now trades at one of the lowest valuation levels among large-cap internet names.
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Trade AMZN with leverageThe valuation disconnect becomes difficult to overlook when you consider that Amazon is now generating retail GMV (gross merchandise value) on par with Walmart, while still delivering faster growth and structurally higher margins, yet the stock trades at roughly a 10-turn discount to WMT and remains below Walmart’s own 10-year average, marking a clear break from the historical pattern in which AMZN consistently commanded a premium, including during periods of stress like GTC (global financial crisis).
These are all points brought up by Jefferies analyst Brent Thill, who says that with investors focused on near-term headwinds tied to AI spending, the market is essentially valuing AMZN like a mature retail business, placing little weight on AWS or the company’s long-term “compounding advantages,” thereby creating an “asymmetric setup.”
Thill has been looking at the different factors “weighing on the stock” and has retorts for all of them. First, the sharp increase in AI capex, with FY26E at about $200 billion and up 56% year-over-year, is expected to drive negative free cash flow of roughly negative $11 billion to negative $8 billion. Thill’s view is that this is a “timing issue” rather than a structural one, as spending is tied to clear demand signals like backlog growth and long-duration AI commitments. As capacity comes online and capex growth normalizes, AWS’s operating leverage should support a recovery in free cash flow.
Secondly, AWS growth has also been trailing peers such as Azure and GCP, with some incremental share loss raising questions about the “overall sustainability of AWS’s competitive edge.” However, Thill thinks AWS is positioned to re-accelerate, supported by improving backlog conversion, a multi-billion-dollar AI revenue run rate, and a “better enterprise demand mix.”
Third, there’s a perception that Amazon is an “AI loser.” It is often seen as lacking a flagship AI model compared to Microsoft/Google. Thill’s counterargument is that its model-agnostic, full-stack platform is better suited for enterprise AI at scale, even if it lacks “headline optics” right now.
Finally, concerns around agentic commerce disrupting retail are overstated, with the analyst believing the core retail economics “remain intact.” While interfaces might evolve, Amazon continues to control the “hardest parts of commerce,” including execution, fulfillment, and high-intent conversion.
As such, Thill believes the “risk/reward into AMZN’s compounding platform (AWS/Ads/AI) is compelling.” Accordingly, the analyst assigns AMZN shares a Buy rating and a $300 price target, a figure that makes room for 12-month returns of 44.5%. (To watch Thill’s track record, click here)
Elsewhere on the Street, AMZN stock claims an additional 41 Buys and 3 Holds, for a Strong Buy consensus rating. The forecast calls for one-year gains of ~43%, considering the average price target stands at $284.30. (See Amazon stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.