Amazon's stock recently saw a notable decline of approximately 6% after its fourth-quarter financial update. This dip was primarily attributed to a slight earnings per share miss and a projected surge in capital expenditures for the coming year. However, a deeper analysis suggests that this market reaction might be an overcorrection, positioning Amazon for a substantial recovery and robust growth in 2026. The company's core businesses, including its dominant cloud computing arm, Amazon Web Services (AWS), and its rapidly expanding advertising sector, continue to exhibit impressive performance and significant potential, making the current pullback an attractive entry point for forward-looking investors.
Amazon Navigates Q4 Challenges, Poised for Significant Growth in 2026
In early February 2026, Amazon (NASDAQ: AMZN) experienced a stock sell-off, with shares dropping around 6% following its fourth-quarter earnings announcement. The market's apprehension stemmed from two key factors: a slight miss on Wall Street's earnings per share (EPS) estimates and a projected increase in capital expenditures to $200 billion for 2026, a substantial leap from the estimated $132 billion in 2025. Despite these immediate concerns, a closer examination reveals a company with formidable underlying strength and strategic vision.
Addressing the earnings shortfall, Amazon reported an EPS of $1.95 for Q4, just shy of the $1.97 analyst consensus. However, this figure was impacted by special charges totaling $2.4 billion, which reduced operating income and, by calculation, lowered EPS by approximately $0.22. Concurrently, Amazon's revenue for the quarter reached $213.4 billion, comfortably exceeding analysts' expectations of $211.3 billion, demonstrating robust top-line growth.
The increase in capital expenditures, a major point of investor concern, is predominantly allocated to Amazon Web Services (AWS). CEO Andy Jassy articulated the rationale during the Q4 earnings call, emphasizing the immense demand for AWS's core and AI workloads. Jassy stated that Amazon is "monetizing capacity as fast as we can install it" and expressed confidence in the company's ability to generate strong returns on invested capital from these expansions, a sentiment widely shared by market observers given AWS's historical performance.
Beyond the investment figures, Amazon's operational performance across its segments remains strong. The company reported a 14% year-over-year increase in overall revenue for Q4, with earnings climbing 6% year-over-year even with the aforementioned special charges. AWS, in particular, showcased accelerated momentum, with revenue surging 24% year-over-year, marking its strongest growth in 13 quarters and achieving an annualized revenue run rate of $142 billion by the end of 2025. This significant growth on a large base underscores the segment's impressive scale and continued expansion.
Furthermore, AWS's future growth appears secured, with its backlog reaching $244 billion, a 40% increase year-over-year and 22% quarter-over-quarter. Amazon's advertising business has also become a powerhouse, with ad revenue growing 22% year-over-year to $21.3 billion in Q4, driven by lucrative sponsored product advertising and contributions from Prime Video ads. The e-commerce division continues to thrive, especially in international markets, bolstered by Amazon's commitment to competitive pricing and expedited delivery services, which enhance customer loyalty and purchasing frequency. A recent study by Profitero highlighted Amazon's consistent position as the lowest-cost retailer in the U.S. for the ninth consecutive year, offering prices an average of 14% lower than leading online competitors. These combined strengths paint a picture of a resilient and expanding enterprise, well-positioned to leverage its strategic investments for substantial long-term gains.
The recent dip in Amazon's stock, while unsettling for some, historically presents a valuable opportunity for investors. The company's enduring competitive advantages, often referred to as its 'economic moat,' are built on its extensive operational scale and a commitment to maintaining low prices. These fundamental strengths typically outweigh short-term market fluctuations, suggesting that the current sell-off could pave the way for a robust rebound, reinforcing Amazon's position as a compelling long-term investment.