Amazon's stock price rarely shows "cost-performance ratio": valuation hits a new low since its listing, "cloud computing + AI" is about to drive a major rebound

According to the Zhitong Finance APP, the stock trading price and overall valuation of the American tech giant Amazon (AMZN.US) are beginning to exhibit characteristics of a "low-price discount"—a term rarely associated with it, which has now become a market focus. The company's recent stock price has significantly declined alongside the three major U.S. stock indices, combined with a long-term certainty of profit growth, bringing its valuation down to a historically low level rarely seen since its listing in 1997. In the context of an overall weak market, this may effectively suppress further downside potential, and its leading position in cloud computing and AI computing platforms, along with a well-developed AI developer ecosystem, may drive Amazon's stock price into a significant rebound trajectory.

Clayton Allison, a portfolio manager at Prime Capital Financial, stated: "Whether relative to the tech sector or the vast retail industry in which Amazon's e-commerce business operates, Amazon's current valuation multiples are extremely attractive for investment. Considering its multiple long-term growth drivers, this represents an excellent investment opportunity in U.S. stocks."

Although tech stock valuations have generally collapsed significantly in recent sell-offs, Amazon's price-to-earnings (P/E) ratio still shows significant historical low characteristics. The stock currently has a forward P/E ratio of about 27x, which is nearly half the ten-year average and even lower than U.S. retail giants Walmart (WMT.US) and Costco Wholesale Corp. (COST.US), which were once valued even lower. Compared to a few years ago when its valuation was several times that of Apple (AAPL.US), Amazon is now experiencing a significant discount.

The significant downward revision in valuation stems from Amazon's recent focus on improving operational efficiency and cost reduction in its cloud computing and e-commerce businesses, which has driven a notable improvement in profitability, although revenue growth potential has been constrained. In the short term, the stock has been impacted by price and valuation declines primarily due to broader market sell-offs—specifically, the ongoing tariff threats imposed by the Trump administration have severely undermined consumer and business confidence in the U.S., raising inflation expectations and recession forecasts, which in turn have continuously triggered waves of sell-offs in U.S. stocks.

Amazon's stock price has fallen about 6% this year, marking its longest consecutive weekly decline since May 2022, with seven weeks of losses. Although its stock performance has lagged behind the Nasdaq 100 Index, which includes the world's top tech companies, it has slightly outperformed the composite index tracking the "seven giants" of U.S. stocks (i.e., the Bloomberg Magnificent 7 Index).

The so-called "Magnificent Seven" refers to Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's parent company Meta Platforms, which are the core driving forces behind the S&P 500 Index's record highs. Looking at the entire U.S. stock market, the seven tech giants have been the leading force driving the entire U.S. stock market since 2023, leveraging the incredibly strong revenue brought by AI, solid fundamentals, years of consistently strong free cash flow reserves, and an expanding stock buyback scale Attracting funds from around the world.

However, since the beginning of this year, especially after the emergence of DeepSeek-R1, the logic behind the seven tech giants leading the U.S. stock market has fundamentally changed. The stock performance of these tech giants has significantly underperformed the S&P 500 index, becoming the core negative catalyst dragging down the entire U.S. stock market. Investors have begun to strongly question whether the high valuations of American tech giants and their frenzied AI spending plans over the past two years are reasonable. On March 10, the combined market value of the "seven giants of U.S. stocks," which hold a high weight in the S&P 500 index and Nasdaq, evaporated by more than $830 billion, setting a record for the highest single-day market value loss for the seven giants.

Wall Street is optimistic about Amazon's stock price about to start a "big rebound."

Wall Street analysts remain nearly unanimous in their optimistic expectations for Amazon's e-commerce and cloud computing + AI business (AWS) performance expansion. Over 95% of analysts tracked by Bloomberg give Amazon a "buy" rating, with the current stock price trading at more than a 30% discount to the analysts' average target price.

Brian White, an analyst from Monness Crespi Hardt & Co., recently reaffirmed his "buy" rating for Amazon and a 12-month target price of up to $265, pointing out that Amazon's profitability has not yet reached its long-term potential level driven by expectations in cloud computing and AI. "Its growth paths in e-commerce, cloud computing (AWS), digital media, advertising, Alexa, robotics, and AI computing platforms are extremely attractive," the analyst stated. As of the close of U.S. stocks on Tuesday, Amazon's stock price rose 1.21% in a single day, closing at $205.71.

Amazon's latest AI-upgraded voice assistant Alexa is seen as a new engine for long-term performance growth. Wall Street analysts generally expect Amazon's overall revenue growth rate to be 9.6% in 2025, rising to 10.4% in 2026, driving the net profit margin from 15% in 2025 to a significant increase of 20% in 2026.

The cloud computing and AI ecosystem platform is the core factor behind Wall Street analysts' bullish outlook on Amazon's future stock price increase, which is also why Wall Street's highest target price reaches $300.

Amazon and Microsoft (MSFT.US), the two leading cloud computing giants, are fully focused on developing B-end and C-end application software ecosystems related to generative AI, aiming to significantly lower the technical barriers for non-IT professionals in various industries to develop AI applications and provide powerful cloud AI computing platforms, especially cloud AI inference computing resources. Other software giants providing similar AI application software development platforms include China's cloud giant Alibaba (BABA.US) and the American "blue giant" IBM (IBM.US), with ServiceNow also offering a similar one-stop development platform Amazon AWS's market share in the cloud computing field far exceeds that of other participants, which has led to the launch of AWS's AI application software development ecosystem—Amazon Bedrock—attracting a large number of enterprise customers to develop various AI applications in a one-stop manner with a low technical threshold. In the fourth quarter, Amazon's cloud computing division AWS reported a year-on-year revenue growth of 19% to $28.8 billion. Driven by the combination of Amazon Bedrock and core cloud computing business (IaaS + SaaS), the revenue growth rate of this cloud computing division has accelerated for six consecutive quarters.

Short-term Disruptive Factors Still Exist

However, for some investors with a more cautious stance, short-term clouds still loom: the tariff policy of the Trump administration and the uncertainty of the U.S. economy are suppressing consumer spending and the penetration rate of AI + cloud services.

In addition, the "U.S. AI computing power surplus expectation" driven by DeepSeek continues to ferment. Amazon's management announced that it will invest approximately $100 billion this year, focusing on building data centers and other AI infrastructure. Some investors are concerned that Amazon's aggressive spending on AI computing power may lead to an oversupply of computing resources, and such a large scale of expenditure will affect profit expectations, especially given the current gloomy macroeconomic outlook where the path to AI revenue in the U.S. remains unclear.

Investors are increasingly focused on when the massive AI investments will translate into tangible returns. Kristian Kerr, the head of macro strategy at LPL Financial, pointed out: "Although the overheating sentiment in tech stocks at the beginning of the year has cooled, in times of economic uncertainty, relative fundamental advantages or valuation attractiveness are difficult to drive a sustained rebound wave on their own." "In terms of artificial intelligence, we need more clarity in the outlook to achieve sustainably higher stock prices."