New Amazon Price Target as Investors Digest Big CapEx Update

We are seeing multiple names across the TheStreet Pro Portfolio recover some of the ground they lost over the last few days. Those include our chip positions, which should not come as a surprise, as they stand to benefit from the greater-than-expected hyperscaler capital spending figures for 2026.

Also benefiting from that are our shares of Eaton (ETN) and Arista Networks (ANET) , but we’re also seeing some of our higher-beta names, like Dutch Bros (BROS) , recover.

But one holding that is slowing the Portfolio’s recovery in a meaningful way on Friday is Amazon (AMZN) .

The response we’re seeing to Amazon’s December quarter earnings report, which included in-line EPS and revenue for the quarter that easily cleared the consensus forecast, reflects three factors.

One, and this won’t surprise you given our opening comments, is the significant step higher in Amazon’s capex plan for this year, which will reach $200 billion, $50 billion more than Wall Street was expecting. Second, as it continues to invest in AWS and other areas, management guided operating income for the current quarter of $16.5 billion to $21.5 billion, which is below the $22.2 billion market consensus. That, in particular, as well as the lofty capex spending, triggered multiple price target cuts for AMZN shares on Friday morning.

Coming off of the market reaction to results and guidance from Microsoft (MSFT) and Alphabet (GOOGL) , we can’t say we’re surprised by the reaction. And while our $310 price target was toward the middle of the range on Wall Street, we, too, will trim our price target to $275. Others have taken them to as low as $260 to as “high” as $310. That combination has also landed Amazon shares in an oversold condition, joining the likes of ServiceNow (NOW) and Palantir (PLTR) , as of this writing.

In the past, we’ve seen Amazon ramp capital spending and other investment spending, and it has a track record of realizing the benefits over time. While some are throwing shade at the company’s free cash flow prospects are given that ramp in capex, consider the comments we shared with you on Thursday about Alphabet’s capex plans and the "One Big Beautiful Bill." What’s good for one is likely good for the other.

But also like the others, the key will be for Amazon to convert the AWS capacity it is adding into not only revenue but also deliver better margins over time. In recent quarters, we’ve seen that Amazon is adept at doing that at its digital shopping and AWS, but it didn’t go unnoticed by us that AWS’s 2025 operating margin dipped to 35.4% from about 37% in 2024 at a time when, per CEO Andy Jassy, AWS added more data center capacity than any other company in the world. Similar to Microsoft and Azure, and other “show me” stories these days, the market will want to see margins at AWS rebound as the bulk of the oncoming spending is digested. Based on what we’re seeing in AI adoption and usage, we can be patient.

As part of that move to ramp AWS capacity, Amazon shared some favorable comments about its custom chip business. While they included favorable price-to-performance comments and benefited from capacity shortages at others, the comment that caught our attention was from Jassy:

"AWS growth continued to accelerate to 24%, the fastest we've seen in 13 quarters, up $2.6 billion quarter-over-quarter and nearly $7 billion year-over-year. AWS is now a $142 billion annualized run rate business, and our chips business, inclusive of Graviton and Trainium, is now over $10 billion in annual revenue run rate, growing triple-digit percentages year-over-year."

Talk about some nice confirmation for our positions in Marvell (MRVL) and Broadcom (AVGO) .

But let’s not forget about Amazon's largest public-facing business: digital shopping.

The North America segment sales increased 10% year over year to $127.1 billion, and its operating margin improved a full point year over year to 9.0%

International segment sales increased 17% year over year to $50.7 billion, and while margins in that business are far smaller than those for the North America one, they also continued to improve.

Recent signals have pointed to consumers not only pivoting more to digital shopping, but also increasingly to grocery, an area of focus for Amazon. It drives not only more repeat visits but also potentially greater attach rates for other items. And we see Amazon’s effort to expand same-day and next-day delivery narrowing the gap even further between reasons to shop online versus in person.

And as we’ve pointed out, lending a helping hand is the growing advertising business, which grew 22% year over year in the December quarter to $21 billion. In 2025, that high-margin advertising business generated more than $68 billion in revenue, and we see more ahead as Amazon continues to focus on that effort.

The bottom line is that, as long-time shareholders of Amazon shares, we’ve experienced sharp ramps in capital spending and investments in the past. Once the dust settles from the market’s reaction, they have tended to be nice times to be buyers of the stock. While that is likely to be the case once again, given investor sentiment, the time for that rebound may take a bit longer.

Given the above, we ask the following questions:

Is there anything we see that would meaningfully derail Amazon’s businesses? Nothing on the horizon.

Are Amazon’s collective businesses likely to be larger/greater in the coming 12 to 18 months? Yes.

Given those answers, is Amazon’s stock price likely to be higher 12-plus months from now than it is today?

We think you know the answer to that third question. Even though we are dialing back our price target to $275, we’ll remain AMZN shareholders. As the company delivers, we’ll revisit that price target as needed.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long ETN, ANET, BROS, AMZN, MSFT, GOOGL, NOW, PLTR, MRVL and AVGO.