Amazon Stock at a Crossroads: Generational Buy or Massive Value Trap?

Key Points
Amazon is investing so heavily in data centers that it will likely be cash-flow-negative this year and has had to raise funds through debt.
The company may get a good return on this investment, but it adds uncertainties in the interim.
Shares of Amazon stock look cheap for investors looking to buy and hold for a decade.
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Did you know that Amazon (NASDAQ: AMZN) stock is up only 34% cumulatively over the last five years? That's right, the technology giant has severely underperformed the stock market indexes, such as the S&P 500, which has produced a 78% total return over the same time frame.
Amazon's stock is sputtering because of Wall Street's skepticism about its heavy investments in artificial intelligence (AI) infrastructure and what that will mean for future cash flows.
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At a generational crossroads, is Amazon stock a good buy for long-term investors? Or is it a value trap whose business is over the hill?
Uncertain return on investment
As one of the bedrocks of cloud computing infrastructure, Amazon Web Services (AWS) is facing a significant surge in customer demand, including from Anthropic, which is buying billions of dollars' worth of compute annually from the company. AWS revenue growth accelerated to 24% year over year last quarter, despite generating around $129 billion in sales last year.
Amazon CEO Andy Jassy believes AWS can grow to $600 billion in revenue over the next decade due to this surge in AI demand. To invest in this vision, the company is committing substantial capital to build data centers for customers. This year, it is expected to spend $200 billion on capital expenditures, mostly related to AI. With $140 billion in operating cash flow last year, Amazon is likely to have negative free cash flow in 2026 and perhaps for many years to come.
This has required the company to add debt to its balance sheet, with around $69 billion raised in late 2025 and early 2026 alone. Wall Street is nervous about adding debt to the balance sheet in an uncertain sector such as AI. If demand doesn't materialize as Amazon expects, it could be left with idle data centers funded by debt. In the short run, this could crush Amazon's earnings.
Time to buy Amazon stock?
Despite this short-term uncertainty and negative cash flow, Amazon stock may be cheap for investors with a time horizon of a decade or longer. There is a massive tailwind for cloud computing that AWS can take advantage of, even if there are fits and starts along the way.
Amazon's e-commerce and retail operations are doing just fine as well, posting record profit margins in 2025. Combined, Amazon as a whole generated $85 billion in earnings before interest and taxes (EBIT) last year. If AWS can grow to even close to what Jassy expects by 2036 and e-commerce keeps producing steady growth, Amazon's business may eclipse $1.5 trillion in sales, which could mean hundreds of billions in earnings. Even with a market cap of $2.2 trillion, that would be a mighty cheap forward price-to-earnings ratio (P/E).
Take the long view. Uncertainties may create volatility in the next few quarters. However, over the next decade, Amazon stock looks like a winner for buy-and-hold investors.
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Brett Schafer 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.