Is Amazon's 7% Share Price Pullback a Strategic Entry Point for Long-Term Investors?

In early December 2025, Amazon's (AMZN) stock experienced a 7% pullback, sparking debate among investors about whether this dip represents a strategic entry point. To evaluate this, we must dissect Amazon's valuation metrics, earnings resilience, and long-term growth drivers, contextualized against industry benchmarks and market dynamics.

Valuation Metrics: Reasonable or Undervalued?

Amazon's trailing twelve-month (TTM) price-to-earnings (P/E) ratio stands at 32.74 as of December 2025, while its forward P/E is 28.57. These figures align closely with the S&P 500's average P/E of 31 and are significantly lower than Amazon's 5-year historical average of 57.35 according to data. The price-to-book (P/B) ratio of 6.54 further underscores a premium valuation, exceeding the Broadline Retail benchmark of 5.45. While the P/B ratio reflects investor confidence in Amazon's intangible assets and growth potential, the P/E ratio suggests the stock is trading at a discount relative to its historical norms and the broader market. Analysts at Zacks Research have assigned a "Strong-Buy" rating, projecting FY2025 earnings per share (EPS) of $7.11. This combination of metrics implies that Amazon's valuation is neither excessively stretched nor undervalued, positioning it as a balanced opportunity for long-term investors.

Earnings Resilience: AWS and Retail Momentum

Amazon's Q3 2025 earnings report highlighted robust performance across its core segments. Revenue reached $180.2 billion, a 12% year-over-year increase excluding foreign exchange impacts. The standout performer was Amazon Web Services (AWS), which grew 20.2% YoY to $33 billion in revenue, marking the highest growth rate in 11 quarters. This acceleration was driven by surging demand for AI workloads and infrastructure, supported by the addition of 3.8 gigawatts of power capacity in the past year according to financial reports.

Operating income for the quarter was $17.4 billion, though this included $4.3 billion in special charges, such as a $2.5 billion legal settlement and $1.8 billion in severance costs according to the earnings release. Excluding these, operating income would have reached $21.7 billion, underscoring the company's underlying profitability. The North America and International segments also delivered 11% and 10% revenue growth, respectively according to the Q3 results. These results demonstrate Amazon's ability to navigate macroeconomic headwinds, with AWS serving as a critical growth engine.

Long-Term Growth Drivers: AI and Global Expansion

Amazon's 2025 capital expenditures (CapEx) of $125 billion are heavily tilted toward AI infrastructure, with 75% of Q2 CapEx ($31.4 billion) allocated to AWS AI cloud compute. The company has also committed to investing $40 billion in cloud and AI infrastructure across 14 APEC countries from 2025 to 2028, projected to contribute $45 billion to U.S. GDP during the same period. These investments align with Brian Olsavsky's assertion that AI represents a "massive opportunity with the potential for strong returns on invested capital over the long term."

The strategic focus on AI is not without challenges. CEO Andy Jassy acknowledged constraints in meeting AI demand, including electricity and chip availability, during the Q3 earnings call. However, the company's CapEx roadmap and AWS's reacceleration suggest a long-term commitment to maintaining leadership in cloud services. Additionally, Amazon's Q4 2025 revenue guidance of $206–213 billion and operating income of $21–26 billion reflect confidence in holiday demand.

The 7% Pullback: Short-Term Concerns vs. Long-Term Potential

The recent 7% decline in Amazon's stock price was primarily attributed to Jassy's cautionary remarks on AI capacity constraints and concerns over U.S. tariffs impacting demand. However, this pullback occurred despite a strong AWS quarter and a 20.2% YoY revenue growth in the segment. Analysts like Morgan Stanley's Brian Nowak remain optimistic, predicting a 2026 rebound contingent on AWS's ability to sustain high growth amid rising competition and investment costs.

Broader market conditions, including Trump's announced tariffs, also contributed to tech sector volatility according to financial analysis. Yet, Amazon's forward P/E of 28.57 and its undervaluation relative to historical averages suggest that the pullback may be overcorrecting to short-term risks rather than reflecting the company's long-term fundamentals.

Conclusion: A Strategic Entry Point?

For long-term investors, Amazon's 7% pullback appears to offer a compelling entry point. The stock's valuation is reasonable relative to historical and industry benchmarks, while AWS's reacceleration and AI investments position the company for sustained growth. Although near-term challenges-such as AI infrastructure bottlenecks and geopolitical risks-exist, Amazon's earnings resilience, CapEx roadmap, and analyst optimism suggest these are manageable headwinds rather than existential threats. As the company continues to expand its AI and cloud capabilities globally, the current dip may represent an opportunity to acquire shares at a discount to their intrinsic value.