Amazon drops 4% as Senate China probe and AI spending fears mount

Amazon shares fell 4% to $234.81 on Thursday after a Senate probe into China marketplace influence and AI spending fears triggered a selloff ahead of earnings.

"The selloff reflects two distinct pressures — regulatory overhang from the Senate investigation and a broader rotation out of mega-cap AI names after Alphabet's capex guidance hike," said Ronald Josey, an analyst at Citi who reiterated a Buy rating on Amazon with a $325 price target on July 16.

The drop pushed Amazon below its 50-day moving average of $251.16 and within striking distance of its 200-day moving average at $234.35. The selloff was part of a broader tech rout that dragged the Nasdaq 100 down nearly 2%, with Alphabet falling 6% and Meta Platforms losing 4% after Google parent Alphabet raised its 2026 capex forecast to as high as $205 billion. Among e-commerce peers, eBay fell 3% and Etsy dropped 2%, suggesting the move was more tech-and-regulatory driven than a broad consumer discretionary problem.

The key tension for Amazon is straightforward: a strong fundamental setup — AWS grew 28% to $37.6 billion last quarter, its fastest pace in 15 quarters, and advertising revenue crossed $70 billion on a trailing basis — is running headlong into an AI capex debate that just claimed Alphabet and Meta as collateral damage. Amazon's Q1 capital expenditures hit $44.2 billion, and its trailing 12-month free cash flow has collapsed to $1.2 billion, showing how much cash the AI buildout is consuming. The company reports Q2 earnings on July 30, with analysts expecting revenue of $198.8 billion.

Senate Probe Adds Regulatory Overhang

The Senate Small Business Committee is investigating whether Amazon allowed Chinese influence over its online marketplace, with Republican staff saying they found "compelling evidence" of "negligence related to Chinese influence," according to a Bloomberg report. The probe follows an earlier report about an alleged bribery network involving Amazon employees in China selling favors to merchants. Amazon declined to comment on the investigation.

Separately, Amazon confirmed workforce reductions in its artificial general intelligence unit, which the company framed as a strategic realignment toward higher-impact projects.

Valuation and Positioning

Amazon stock trades at a trailing 12-month P/E of 28 times, sitting between eBay at 25 times and Etsy at 30 times. Wall Street remains broadly constructive: the consensus analyst rating is a Strong Buy with an average price target of $318.98, implying about 36% upside from current levels. Bank of America maintains a Buy rating with a $310 target, and KeyBanc also rates the stock a Buy with a $335 target.

Prediction markets currently price a 95% probability that Amazon beats Q2 estimates. Still, the regulatory overhang from the Senate probe and the scale of Amazon's roughly $200 billion 2026 capex plan add risk to the near-term outlook.

This article is for informational purposes only and does not constitute investment advice.