Analyst Says Amazon(AMZN) Among the Best Undervalued AI Stocks to Buy – Here’s Why

Amazon (AMZN) is being highlighted by analysts like Bill Baruch of Blue Line Capital as a compelling investment opportunity, citing its attractive valuation at 25x forward earnings and expected reacceleration of AWS revenue and profitability, prompting an increased firm position. While AMZN has lagged peers due to e-commerce headwinds and a recent AWS growth deceleration (17.5% in Q2) amidst a cloud market shift towards AI-first platforms, institutional investors like Mairs & Power Balanced Fund have initiated positions, leveraging stock weakness. The stock's recent rebound from its 200-day moving average and potential break above $230 are seen as catalysts for further inflows.

Analysis

Amazon.com Inc (NASDAQ:AMZN) is attracting renewed institutional interest despite recent underperformance, driven by an attractive valuation and anticipated reacceleration in its cloud segment. Bill Baruch of Blue Line Capital highlights AMZN's current trading at 25 times forward earnings, one of its lowest valuations historically, and projects AWS revenue growth to reaccelerate to around 19% year-over-year, alongside improved profitability. Blue Line Capital has increased its position from 4.5% to 6% based on this outlook and technical indicators.

The stock's recent lag behind other 'Magnificent 7' members is attributed to e-commerce headwinds, including tariff-related issues and weakening consumer buying power, as well as a deceleration in AWS growth. In Q2, AWS grew 17.5%, trailing Microsoft Azure's 26% and Google Cloud's 32%, a slowdown linked to a structural shift in the cloud market towards AI-first platforms where competitors have stronger generative AI integration.

However, institutional investors like Mairs & Power Balanced Fund initiated a new position in Q2, capitalizing on stock weakness in April due to tariff news and market declines. Technical analysis suggests a rebound from the 200-day moving average and a potential break above $230 could trigger significant inflows, setting the stage for new record highs for the broader market. This confluence of fundamental valuation, expected cloud recovery, and technical catalysts presents a compelling narrative.

The company's ability to capture market share in retail and grow its market-leading cloud business, as noted by Mairs & Power, underpins the long-term investment thesis. The current backdrop is seen as opportune for increasing exposure to AMZN, especially if it sustains momentum above key technical levels.

Key Decisions for Investors

• Investors should closely monitor AWS revenue reacceleration, specifically its ability to reach the projected 19% growth, as a key driver for profitability and stock performance.
• Evaluate Amazon's strategic response and investment in AI-first cloud offerings to compete effectively against Microsoft and Google, which currently hold an advantage in generative AI integration.
• Consider technical entry points, such as a sustained break above the $230 price level, which analysts suggest could trigger significant institutional buying interest and further upside momentum.
• Assess the ongoing impact of e-commerce headwinds, including tariff developments and consumer spending trends, on Amazon's retail segment, as these factors have historically weighed on the stock.