Amazon Stock Just Did Something Last Seen in 2006. It Signals a Big Move in the Next Year if History Repeats Itself.

Core Viewpoint - Investors are concerned about Amazon's significant investments in artificial intelligence, yet Wall Street believes the stock is undervalued, with a median target price suggesting a 43% upside from its current price [1][2]. Financial Performance - Amazon's revenue for the fourth quarter rose 14% to $213 billion, driven by strong sales in advertising and cloud computing, although net income increased only 5% to $1.95 per diluted share due to one-time charges totaling $2.4 billion [4]. - Excluding one-time charges, operating income would have increased by 30%, indicating underlying strength in the business [4]. Capital Expenditures and AI Investments - Amazon plans to spend $200 billion on capital expenditures by 2026, a 56% increase from $128 billion in 2025, primarily for AI infrastructure development [5]. - CEO Andy Jassy emphasized strong demand for AI services and custom AI chips, projecting a "strong long-term return on invested capital" [6]. Market Position and Growth Potential - Amazon maintains a solid investment thesis due to its strong presence in e-commerce, digital advertising, and cloud computing, all of which are expected to grow rapidly [7]. - The company has developed numerous generative AI tools to enhance efficiency in its retail operations, contributing to a 1.5 percentage point improvement in operating margin in the fourth quarter [8]. AWS and AI Revenue Growth - Amazon Web Services (AWS) reported a 24% revenue increase in the fourth quarter, marking the fastest growth in 13 quarters, driven by the addition of various AI tools [9]. - The chips business, including custom CPUs and AI accelerators, has surpassed a $10 billion annual revenue run rate, growing at a triple-digit pace [10]. Future Earnings and Valuation - Wall Street estimates that Amazon's earnings will grow at an annual rate of 15% through 2027, making the current valuation of 28 times earnings appear reasonable [11]. - The retail e-commerce sector is projected to grow at 12% annually through 2030, while adtech and cloud computing are expected to grow at 14% and 16% annually, respectively [12].