Amazon's stock recently saw a decline of over 3%, extending a weekly drop of more than 9%. This downturn, coinciding with a broader sell-off in chip stocks, brings to the forefront a critical question for investors: Is Amazon still a viable investment, particularly given the sustained expansion of artificial intelligence?

A strong argument supports investing in Amazon. The foundation of this argument rests on its rapidly expanding cloud computing division, Amazon Web Services (AWS), which continues to be a major profit driver. Beyond AWS, Amazon's advertising revenue and the profitability of its retail operations are also experiencing upward trends. However, this growth comes at a significant cost, with the company incurring substantial expenses to maintain its various ventures.

AWS is demonstrating remarkable acceleration, reporting a 28% year-over-year growth in the first quarter of 2026, reaching $37.6 billion. This represents an increase from 24% in the fourth quarter of 2025 and 20% in the third. Amazon CEO Andy Jassy highlighted the unusual nature of such rapid growth from an already massive base, noting that AWS was half its current size when it last achieved this growth rate. The resurgence in AWS's growth is largely attributable to the surge in AI development, with companies demanding vast amounts of computing power for training and running AI models. Amazon is increasingly leveraging its custom-designed chips, including Graviton, Trainium, and Nitro, which now generate over $20 billion in annual revenue and are growing at triple-digit rates. This demand is further evidenced by expanded cloud agreements, such as with OpenAI, and a substantial increase in AWS's remaining performance obligations, now standing at $364 billion.

Beyond its dominant cloud services, two other business segments are contributing significantly to Amazon's overall performance. The company's advertising revenue climbed 24% in the first quarter, reaching $17.2 billion, positioning Amazon as a major player in digital advertising, behind only Alphabet and Meta. Furthermore, Amazon's retail division, often the public face of the company, is finally demonstrating meaningful profitability. North American operating income surged to $8.3 billion from $5.8 billion in the prior year, driven by more efficient delivery systems and a streamlined warehouse network that reduced per-order costs. The volume of items sold across its platforms also increased by 15% year-over-year, marking the fastest growth since the pandemic-induced surge. These combined improvements propelled Amazon's operating margin to a record 13.1%, with overall operating income rising by 30%. However, this growth necessitates substantial capital investment, with Amazon spending $44.2 billion on property and equipment in the first quarter alone, up from $25 billion a year earlier. Management anticipates approximately $200 billion in capital expenditures throughout 2026, primarily directed towards data centers and AI chips. This significant outlay has nearly depleted the company's free cash flow, which fell to about $1.2 billion over the past year from nearly $26 billion in the preceding twelve-month period. If AI demand continues its trajectory, these investments could yield long-term returns. Conversely, if AI growth slows, free cash flow could remain under pressure for an extended period.

Considering its current valuation, with Amazon trading at approximately 32 times earnings (or closer to the mid-30s when excluding gains from its Anthropic investment), the stock is not inexpensive. Nevertheless, for a company achieving 30% annual operating profit growth across all major business segments, this valuation may not be unreasonable. For investors who are comfortable with substantial spending and the inherent stock price volatility that often accompanies it, Amazon could present a worthwhile purchase at its current price. The primary risk is not a halt in business expansion, which clearly is not happening, but rather that the extensive AI build-out may prove more costly or take longer to yield returns than management anticipates. Consequently, maintaining a balanced position and evaluating its performance over years rather than quarters would be a prudent approach.