News

Key Points

• Artificial intelligence (AI) could help many areas of Amazon's business.

• However, Amazon plans to invest heavily in AI this year, and that has spooked investors.

• The stock doesn't look all that expensive when compared to the S&P 500.

Tech giant Amazon (NASDAQ: AMZN) has been struggling this year and is down 9% as of March 2. Its share price dipped briefly below the $200 mark last month, and it's getting close to those levels once again.

While this is still a highly valuable business with a market cap of more than $2 trillion, buying a top tech stock like Amazon on the dip could be a compelling opportunity for growth investors. Is it worth buying if it falls below $200 again?

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Are concerns about overspending overblown?

The key reason Amazon's stock has been struggling so much relates to artificial intelligence (AI). While AI is an enormous growth opportunity for many industries, investors are nonetheless concerned about whether all the investments into AI will pay off in the end.

Amazon, in particular, is investing heavily in AI and recently unveiled plans to spend as much as $200 billion in capital expenditures for the coming year. That's higher-than-expected spending, and it's the highest among the hyperscalers. As a result, investors who were already concerned about high levels of spending on AI have grown exceedingly concerned about Amazon.

But Amazon's businesses could stand to benefit significantly from AI, with its online marketplace and cloud business, Amazon Web Services, being obvious opportunities for AI to add efficiency. It's possible the market is overreacting, as Amazon's valuation has been pushed down to some remarkably low levels.

Has Amazon's stock become a bargain buy?

Over the past 12 months, Amazon's stock has declined by around 1%. It's not a steep sell-off, but the stock is down close to 20% from its 52-week high of $258.60. Currently, it's trading at just under 26 times its estimated future earnings (which are based on analyst expectations). That's a bit higher than the S&P 500 average of 22, but not by much. And investors have typically been willing to pay a high premium for Amazon's stock in the past, given its plentiful growth opportunities. Last year, the company's sales rose by 12% to $716.9 billion, and its net income increased by 31% to $77.7 billion.

If the stock falls below $200, it could indeed be a great time to invest in the tech giant. Buying Amazon stock at a reasonable valuation could help set you up for some fantastic returns in the future. But if you're a long-term investor who's willing to hang on to it for years, there's arguably little reason to wait -- buying the stock today already looks like a great move.

Should you buy stock in Amazon right now?

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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.