Amazon’s stock has taken quite a hit recently, dropping over 20% since February 2025. This downturn has left many investors scratching their heads, wondering what went wrong.
Let’s dive into the key factors behind this market shakeup and hear what some experts have to say.
Key Factors Behind the Stock Decline
Investor Anxiety Over $100 Billion AI Investment
One of the biggest concerns for investors is Amazon’s ambitious plan to spend $100 billion in 2025 to enhance its AI capabilities within Amazon Web Services (AWS). This is a significant jump from the $77.7 billion spent in 2024. While AWS has been a powerhouse, generating record operating income of $68.6 billion last year, some analysts are getting nervous about whether this investment will pay off.
For instance, CEO Andy Jassy has defended the spending, emphasizing that most of it is aimed at bolstering AI for AWS. However, analyst Gil Luria expressed caution, pointing out that AWS growth “did not accelerate as anticipated,” partly due to supply chain issues affecting AI chip availability.
Disappointing Q1 2025 Guidance
Adding to the woes, Amazon’s forecast for Q1 revenue came in below expectations. The company projected revenue between $151 billion and $155.5 billion, which translates to only 5–9% growth year-over-year. Wall Street was hoping for around $158.3 billion. Antonio Di Giacomo, a markets analyst, noted that this uncertainty about growth amid economic challenges has led to a sell-off.
Technical Indicators Signal Oversold Conditions
On top of all this, technical indicators suggest that Amazon’s stock might be oversold. The Relative Strength Index (RSI) hit a low of 27 recently, which often indicates that a stock is due for a bounce back. Hedge fund manager Doug Kass, who predicted this market correction, started buying Amazon shares again, suggesting that the stock may be undervalued at this point.
Expert Perspectives on Recovery Potential
Bullish Case: A Short-Term Rally Ahead
Some experts remain optimistic about Amazon’s potential for recovery. Kass believes that the recent sell-off may have been overdone and predicts a relief rally could lift shares by 15–20% in the second quarter. Trader Bob Lang also sees some bullish signals in the technicals, noting that money flow is improving and the stock has bounced off its 200-day moving average.
Bearish Concerns: Long-Term Margin Risks
However, not everyone is convinced that a recovery is imminent. Sky Canaves from Emarketer pointed out that AWS’s slowing growth matches challenges faced by competitors like Google and Microsoft. Additionally, some analysts warn that if Amazon fails to reclaim key support levels, further declines could be on the horizon.
Market Reactions and Macro Pressures
Interestingly, despite broader market stabilization after comments from Fed Chair Jerome Powell eased some concerns, Amazon’s stock continued to slide post-earnings. While companies like Microsoft and Google are also facing pressures related to AI investments, Amazon’s heavy reliance on AWS makes it particularly vulnerable.
Long-Term Outlook: Strategic Necessity vs. Short-Term Pain
Most experts agree that Amazon’s hefty investment in AI is essential for its future success. Jon Quast from Nasdaq emphasizes that if Amazon wants AWS to maintain its dominance, it needs to meet growing AI demand. The good news is that with $38 billion in free cash flow last year, Amazon can absorb these costs—but projections indicate a slight dip in operating income for 2025.
Conclusion: A High-Stakes Balancing Act
In summary, Amazon’s stock plunge highlights a complex interplay between short-term profit concerns and long-term strategic investments.
While some analysts see potential for a rebound based on technical indicators and contrarian buying, the company will need to demonstrate solid growth in AWS driven by its AI initiatives to reassure investors.
As we move forward into Q2, all eyes will be on how Amazon navigates these challenges and whether its bold investments will ultimately pay off or lead to deeper troubles down the line.