2 Beaten Down AI-linked Stocks To Revisit

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Introduction

Artificial intelligence (AI) was the market’s brightest star until volatility struck. In recent months, several AI-linked stocks have suffered sharp and sudden selloffs, wiping out billions in market value and shaking investor confidence.

But here’s the critical question: are these declines a reflection of deteriorating fundamentals or simply the market’s tendency to overreact?

Before writing off these companies, investors should pause and examine what truly matters: earnings strength, competitive positioning, balance sheet resilience, and long-term growth potential. Market sentiment can shift in weeks. Business fundamentals, however, tell a much longer story.

In periods of heightened volatility, the biggest opportunities often emerge not from chasing momentum, but from identifying mispriced quality.

The real issue isn’t whether AI stocks have fallen. It’s whether the market has misjudged them.

1. Microsoft: Boosting Value with Strategic Moves

When Microsoft reported its latest earnings, the market’s reaction was swift and brutal.

The concern? Slowing Azure momentum.
The culprit? Surging capital expenditure.

On the surface, the anxiety seems justified. In 2QFY2026, revenue climbed 17% year-on-year to US$81.3 billion, while net income surged nearly 60% to US$38.5 billion. Yet capital expenditure soared 66% to US$37.5 billion , growing far faster than Azure and other cloud services revenue, which rose 39%.

To some investors, that gap signals trouble.

But that interpretation may be missing the bigger strategy.

Microsoft isn’t optimising for short-term Azure growth percentages. It’s optimising for lifetime value. Under its LTV portfolio approach, scarce computing capacity is deliberately channelled toward higher-value workloads including M365 Copilot and Dragon Copilot even if that means keeping Azure’s growth rate below the psychologically important 40% threshold.

In other words, this is disciplined capital allocation not reckless spending. The proof is in the numbers that matter most: Microsoft’s long-term operating margins remain structurally stronger than most cloud peers.

The real question isn’t whether capex is rising. It’s whether Microsoft is investing ahead of demand — or investing intelligently for the next wave of AI-driven profitability.

2. Amazon: Charting a Path to Future Success

When Amazon reported 4Q2025 results, the headline numbers looked solid. Net sales climbed 14% year-on-year to US$213.4 billion, while net income rose 6% to US$21.2 billion powered by strength in AWS, advertising, chips, and retail, despite one-off charges.

Yet the market focused elsewhere.

Trailing twelve-month free cash flow plunged 71% to US$11.2 billion, dragged down by a sharp surge in capital expenditure to fund AI infrastructure and satellite initiatives. At first glance, that FCF drop appears alarming.

But zoom out.

Amazon isn’t burning cash to stay afloat, it’s deploying capital into businesses that are already monetising at scale.

• AWS grew 24% year-on-year to US$35.6 billion in quarterly revenue, reaching a US$142 billion annualised run rate, its fastest growth in 13 quarters.
• Amazon Bedrock, its AI model platform, saw customer spending surge 60% quarter-on-quarter, achieving a multibillion-dollar annualised run rate.
• In retail, margins expanded as US network regionalisation and the deployment of over one million robots boosted efficiency.

Yes, heavy AI and satellite investments are weighing on near-term FCF.

But the more important signal is this: demand across Amazon’s cloud, AI, and custom silicon ecosystem is accelerating not slowing. Beyond powering AWS, AI is increasingly embedded across Amazon’s logistics, fulfilment, and retail operations, improving productivity and widening competitive advantages.

The real question for investors isn’t why free cash flow is down.

It’s whether Amazon is laying the foundation for its next era of cash generation.

3. Smart Moves: Noise vs Fundamentals

The recent selloffs in Amazon and Microsoft stem from a common concern: will their massive AI investments actually deliver attractive returns?

The market sees soaring capex and near-term free cash flow pressure and hesitates.

But long-term investors should be asking a far more important question: Is AI-led secular growth slowing… or is it only just beginning?

Yet its financial results tell a very different story.

Management pushed back with hard data: accelerating AI adoption, rising annual contract value (ACV), and near-perfect renewal rates.

Across all 2 companies, the selloff reflects rising costs and perceived execution risks.

But the fundamentals suggest something else: durable demand, expanding monetisation, and businesses positioning themselves at the centre of the AI ecosystem.

The disconnect between sentiment and fundamentals may be widening and history shows that’s often where long-term opportunity emerges.

The Bottom Line

Market pullbacks driven by uncertainty often feel uncomfortable especially when they involve heavy spending and compressed cash flow. But transformative technology cycles have never been linear.

In the early days of cloud, e-commerce, and mobile, the winners invested aggressively before the payoff became obvious. AI appears no different.

For Amazon and Microsoft, today’s narrative centres on rising costs and perceived risk. Yet beneath the surface, demand is accelerating, monetisation is scaling, and competitive moats are deepening.

The market is pricing in doubt.

The fundamentals are pointing to durability.

For long-term investors, the key question is not whether AI investment is expensive today but whether these companies are positioning themselves to dominate the next decade of value creation.

Because if AI adoption continues to compound, the current volatility may one day look less like a warning sign and more like an opportunity.

Happy Investing!!