Cathie Wood Goes Bargain Hunting. Here's 1 "Magnificent Seven" Stock She Just Bought on the DeepSeek Dip.

For the last couple of years, the stock market has rallied on an unwaveringly positive narrative surrounding the prospects of artificial intelligence (AI). The momentum that's fueled technology stocks in particular carried into 2025 -- until about two weeks ago, when the party music suddenly stopped out of nowhere.

An AI start-up out of China called DeepSeek released a model that is similar to those built by ChatGPT or Perplexity. The concern, however, is that DeepSeek claims to have unlocked new methods to train AI models by using older, seemingly less sophisticated architectures. As such, investors have become worried that the hundreds of billions that U.S. technology businesses are pouring into expensive chipware may have been an overzealous move. Unsurprisingly, stock prices for big tech, and in particular the "Magnificent Seven," have been cratering in epic fashion.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Nevertheless, one prominent tech investor doesn't seem dissuaded by the DeepSeek drama. Of course, I'm talking about Ark Invest CEO Cathie Wood -- who almost always seems to exhibit a sense of optimism when it comes to new technologies.

I'll reveal which Magnificent Seven stock Wood just scooped up and make the case for why I think her decision is a savvy move.

Which Magnificent Seven stock did Cathie Wood just buy?

One of the nice things about Ark Invest is that the fund publishes its trading history daily. Usually, investors need to wait until the end of the quarter to see which stocks institutional investors bought and sold. Wood's transparency is helpful, as it provides investors with a real-time glimpse into what stocks she's monitoring.

Around Jan. 24 was when I first started hearing chirps about DeepSeek and began seeing some headlines publish on financial news programming. The chart shows that shares of Amazon (NASDAQ: AMZN) clearly started to slide in the final days of January -- as more news about DeepSeek started to break.

AMZN data by YCharts

Well, Wood took note of these moves. Between Jan. 27 and Feb. 7, Wood added over 120,000 shares worth more than $28 million to five of her exchange-traded funds (ETFs), including ARK Next Generation Internet, ARK Innovation, ARK Fintech Innovation, ARK Autonomous Technology & Robotics, and ARK Space Exploration & Innovation.

Data source: Ark Invest.

In addition to the initial sell-off influenced by DeepSeek, Wood doubled down on her conviction in Amazon, as evidenced by her purchases following the company's fourth-quarter and full-year 2024 earnings call on Feb. 6.

Since reporting earnings, Amazon stock has dropped again -- primarily due to the company's hefty capital expenditures (capex) plan for 2025, which is forecast to be in excess of $100 billion. I think some investors have reservations about this level of spend due to DeepSeek's initial claims. For these reasons, some investors appear to be souring on big tech at the moment.

Image source: Getty Images.

Is now a good time to buy Amazon stock?

As an investor in Amazon, I am not personally worried about how much the company is investing in AI infrastructure. Rather, I am more focused on where the company is spending.

During the company's recent earnings call, Amazon CEO Andy Jassy said the "the vast majority of that capex spend is on AI for AWS."

Data source: Investor relations.

When you look at the financial profile, it's hard to argue with Jassy's vision. Over the last two years, Amazon has invested $8 billion into an AI start-up called Anthropic -- which the company has integrated tightly with its cloud computing platform, Amazon Web Services (AWS). In this time, AWS has accelerated both revenue and profit growth, now becoming a business generating more than $100 billion in annual sales while generating nearly 50% growth in operating income.

Amazon's investments in AI infrastructure are already bearing fruit. For this reason, I see the company's 2025 capex budget as a good sign for more growth to come down the road.

Nevertheless, Amazon currently trades at a price-to-free cash flow (P/FCF) multiple of 75 -- well below its five-year average of 104.

I think many investors are honing in too closely on Amazon's spending and not giving management enough credit for the growth the company has already witnessed over the last two years in particular (since AI became the main focal point).

I think Wood's idea to buy the dip on Amazon right now is incredibly smart. Investors with a long-term time horizon might want to consider following Wood's lead and scoop up some shares of the company while the stock remains at a historical discount.

Should you invest $1,000 in Amazon right now?

Before you buy stock in Amazon, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $850,946!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of February 7, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.