August has only just begun, but it has already been a tough month for Amazon (NASDAQ:AMZN) Shareholders. The stock initially fell after the e-commerce giant missed analysts’ revenue estimates when it released its second-quarter results.

Meanwhile, the stock has continued to fall due to the global sell-off. A small interest rate hike in Japan and the unwinding of the carry trade appear to be a reason for the market’s recent weakness.

Let’s take a closer look at Amazon’s recent results to see if the sell-off is a good opportunity to buy the stock.

Results and forecasts for the second quarter are not convincing

When it comes to earnings, a stock’s reaction often depends on the expectations that go into the results. If a company falls short of analysts’ estimates on a key metric or issues guidance that is below analysts’ expectations, the stock often comes under short-term pressure.

Although Amazon reported solid 10% revenue growth in the second quarter, revenue of $148 billion fell short of analyst expectations of $148.6 billion. Meanwhile, the company forecast third-quarter revenue to rise 8% to 11% to $154 billion to $158.5 billion. However, the midpoint of $156.4 million was below the analyst consensus of $158.2 million.

The company’s cloud computing segment, AWS, led the way, with revenue growth of 19% to $26.3 billion. AWS’s operating profit, meanwhile, rose 72% from $5.4 billion to $9.3 billion.

North American revenues rose 10% to $90 billion, while international revenues rose 7% to $31.7 billion. Advertising services led the way, with revenues growing 20% ​​to $12.8 billion. The company is bullish on the prospects of integrating advertising into its Prime Video service, and just signed an 11-year deal with the NBA to broadcast live games. Subscription services revenues, meanwhile, rose 11% to $10.9 billion.

Third-party services revenue increased 13% to $36.2 billion. Online stores only saw revenue growth of 6% to $55.4 billion, while physical store sales increased 4% to $5.2 billion.

Like its cloud computing rivals, Amazon plans to invest heavily in building out the infrastructure needed to support rising demand for artificial intelligence (AI) as well as non-AI workloads. As a result, capital expenditure (capex) will be higher in the second half of the year than in the first half.

Amazon also continues to promote its new AI chips, Trainium for training and Inferentia for inference, the next generation of which will be launched later this year. Management says there is strong demand for the chips given their price-performance ratio.

The story continues

Is it time to join Amazon?

Amazon has a number of strong opportunities ahead of it. First and foremost is AI, and the company is capitalizing on this opportunity on multiple levels, from cloud computing to its own AI chips to offering large language model (LLM) services.

Advertising is another big opportunity, and this area showed strong growth in the second quarter. Sponsored product ads are currently Amazon’s biggest source of advertising revenue, but the company will also be running more advertising on its Prime Video service. The deal with the NBA will no doubt bring a lot of interest and advertising dollars to the streaming service.

One downside to Amazon is its valuation. The stock currently trades at a price-to-earnings (P/E) ratio of nearly 28, based on analyst estimates for 2025. While that’s below the historical P/E ratio, the company’s revenue growth has slowed over the years.

Given its revenue growth and gross margin, I would rate Amazon’s current valuation as somewhat high. Amazon’s gross margins are much lower than those of a software company. For example, Microsoft Amazon’s gross margins are nearly 70%, while they are below 50% and 31% when fulfillment costs are included.

Given the current overall market weakness, I would most likely take a small entry position in Amazon due to the opportunities it presents, while looking to add more if the sell-off continues and the valuation becomes more attractive.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler does not own any of the stocks mentioned. The Motley Fool owns and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Should Investors Buy Amazon Stock After Sales-Dropping Slide? was originally published by The Motley Fool