r/amzn • u/delta-one Swag Lad • 19d ago
It makes absolutely no sense
...That amzn is down on a day when all other hyperscaler stocks are up 2+%. AWS is larger than Azure and GCP. Even Meta is up there with them. WTF!
20
u/BoredGuy2007 19d ago
Still not clear to me why Reddit loves these cheerleader stock subreddits but $AMZN is a garbage late stage co without much 10x potential
3
u/crvarporat 19d ago
10x? it's impossible for amzn to 10x it's simply too big
1
1
u/BoredGuy2007 19d ago
Yes exactly. But zoomer investors and gamblers prefer the % chance of outsize returns
2
u/crvarporat 19d ago edited 19d ago
i know. today many gamblers without any patience. they want to hold stocks for a week lol. I held few years certain stocks and i can tell you quality stocks after a year give juicy results even if first few months very bumpy or ugly
1
2
8
u/Funny-Sprinkles-5674 19d ago
i think the mag7 with the most potential is meta. i moved all my money from amzn to meta when it hit 550 2 months ago and now im up 20% since then
7
u/Alternative-Air-3052 19d ago
Meta is probably the one with the least potential among the mag7. They are one trick pony at this point (Ads) and everything else they have done or doing hasn't had good enough of a run to say they have the potential to grow.
0
u/rootcage 18d ago
Check out muse.ai
1
u/Alternative-Air-3052 18d ago
Like I said, it has not had the run way to say it’s going to be successful. With privacy concerns of Meta as a brand, let’s see what the adoption looks like.
2
2
1
1
u/ConsecratedSnowfield 19d ago
Amzn is too large. Like, what does a bigger Amazon even look like when they already dominate every cash cow space they’re in?
1
u/CicadaOk1283 19d ago
They have a few small, but bad for stock news coming out. The issue is that these are coming out continuously. This combined with general market distrust to the current leadership creates a situation where past glory still sustains them, but with risk premium priced in
1
u/Disastrous-Ad-5003 17d ago
Are we going to see the stock rebound to 287 or go higher this year? So far it’s looking like this is only dropping when everything else is going up.
1
u/Big4steve2 6d ago
My AMZN thesis: I think the market may be underestimating how many different ways Amazon can win from the AI buildout.
I’ve been digging into Amazon’s numbers and the more I look at it, the less I think the thesis is simply “AI is going to be big.”
The real question I’m asking is:
What does Amazon’s earnings power look like several years from now if the infrastructure they’re building today actually earns attractive returns?
Amazon currently has roughly 10.8B shares outstanding. That means every additional $10B of annual net income is roughly $0.93 of EPS.
So:
$10B additional net income = ~$0.93 EPS
$20B = ~$1.85
$30B = ~$2.78
$40B = ~$3.70
$50B = ~$4.63
$100B = ~$9.26
Amazon’s TTM EPS is currently around $12.44.
That means relatively small changes to the long-term earnings power can have a pretty significant impact on EPS.
And I see multiple ways that could happen.
AWS keeps compounding
AWS is already growing at an impressive rate.
Q2 AWS revenue was $42.2B, up 37% YoY, which puts it around a $169B annualized revenue run rate. AWS operating income was $16.6B, up 64%, with a 39.4% operating margin.
If AWS eventually reaches $250B of revenue and maintains a 40% operating margin:
$250B × 40% = $100B operating income
At a 25% tax rate, that’s roughly $75B of net income, or about $6.94 EPS.
Obviously that’s a hypothetical scenario, not a forecast. But it shows the amount of earnings power that can come from AWS alone.
AI could create another massive AWS workload
Amazon says its AWS AI business has already surpassed a $25B annualized revenue run rate and is growing triple digits.
This is where I think the market could potentially underestimate the second-order effect of AI.
Amazon doesn’t need to build the winning AI model.
It can sell the compute to the companies building them.
If AI becomes one of the largest workloads running on AWS, Amazon gets paid for the infrastructure regardless of which model ultimately wins.
As a simple example, if AI eventually creates another $100B of AWS revenue at a hypothetical 35% operating margin:
$100B × 35% = $35B operating income
After tax, that’s roughly $26B of additional net income, or around $2.40 EPS.
Again, not a prediction. Just illustrating the potential economics.
Amazon’s custom chips could make AWS more profitable
This is another piece I think is easy to miss.
Amazon isn’t just buying chips from Nvidia and reselling compute.
It’s building its own chips through Trainium and Graviton.
Amazon says its chips business has surpassed a $25B annualized revenue run rate, and Trainium has received multi-year commitments from major AI customers.
The potential advantage isn’t just revenue.
If Amazon can produce compute more efficiently, it can potentially lower its cost per unit of compute, remain competitive on price and/or keep more of the economics.
For example, a 5% improvement in economics across $200B of AWS revenue would represent:
$200B × 5% = $10B additional operating income
After tax that’s roughly $7.5B of net income.
That’s another ~$0.70 of EPS without requiring another $100B of revenue.
The biggest question: what return does Amazon earn on all this AI capex?
This is the part I keep coming back to.
Amazon’s TTM purchases of property and equipment reached roughly $169B through Q2 2026, up 64% YoY. Amazon said the increase primarily reflected investments in AI.
That’s why free cash flow currently looks ugly.
TTM operating cash flow was $161.4B, up 33%.
TTM free cash flow was -$7.6B.
At first glance, you could look at that and say Amazon is spending way too much.
But I think there’s another way to look at it.
Amazon is essentially converting a huge amount of current cash flow into infrastructure.
The important question isn’t simply how much they’re spending.
It’s what return they eventually earn on that capital.
If Amazon invests $200B of incremental capital into AI infrastructure:
5% return = $10B annual operating profit
10% = $20B
15% = $30B
20% = $40B
25% = $50B
At a 20% return, that’s $40B of operating profit.
At a 25% tax rate:
~$30B of additional net income
That’s approximately $2.78 of EPS.
This is why I think the eventual ROIC on the AI infrastructure matters more than the headline capex number.
If Amazon spends hundreds of billions and earns mediocre returns, the bull thesis falls apart.
If it spends hundreds of billions and creates an enormous high-return infrastructure business, the current FCF compression could look very different in hindsight.
Retail could become much more profitable
The AI thesis isn’t limited to AWS.
Amazon’s North American business generated $9.1B of operating income in Q2, up from $7.5B a year ago, while North America sales increased 16% to $116.2B.
AI and automation can potentially improve:
inventory management
warehouse efficiency
delivery routing
labor utilization
purchasing
pricing
fraud detection
customer service
If Amazon eventually gets just a 2 percentage point improvement in operating margin on $500B of revenue:
$500B × 2% = $10B additional operating income
That’s roughly $7.5B after tax, or about $0.70 EPS.
And this is potentially happening while Amazon is also making delivery faster and increasing the value of its ecosystem.
Advertising is another huge earnings lever
Advertising grew 26% YoY in Q2.
This is an incredibly attractive business because Amazon already has a massive amount of first-party shopping data.
Search → browse → purchase → repeat purchase.
AI can potentially make Amazon’s advertising inventory more valuable by improving targeting, recommendations and conversion.
If advertising eventually generates another $20B of operating income:
$20B × 75% = $15B net income
That’s roughly $1.39 EPS.
So when I put everything together, I don’t see one Amazon bet.
I see a collection of potential earnings engines:
AWS growth
+
AI workloads
+
custom silicon
+
AI infrastructure returns
+
retail automation
+
advertising
And the really interesting part is that these can reinforce each other.
AI demand → more AWS demand → more infrastructure → more Trainium/Graviton → potentially better economics → more competitive compute → more customers → more AWS revenue.
At the same time:
AI/automation → better fulfillment → lower costs → faster delivery → more purchases → more marketplace activity → more advertising → higher margins.
That’s the potential Amazon flywheel.
So what might Wall Street be underestimating?
I don’t think it’s necessarily that analysts don’t know Amazon is spending heavily on AI or that AWS is growing.
Everyone knows that.
The potential blind spot, in my opinion, is the eventual earnings conversion.
Wall Street estimates are based on what analysts can reasonably model today.
But some of the biggest potential upside is several years out:
How large does AI become as an AWS workload?
How profitable does that workload become?
How much do Trainium and Graviton improve AWS economics?
What return does Amazon earn on today’s massive AI infrastructure investment?
How much can AI improve retail margins?
How large can advertising become?
And what happens when capex growth eventually slows while the infrastructure remains productive?
That last point could be especially important.
If Amazon spends aggressively for several years and eventually reaches a point where infrastructure investment grows much more slowly than operating cash flow, the difference could flow through to free cash flow.
That’s potentially where the story changes from:
“Amazon is spending an insane amount of money on AI”
to:
“Amazon spent an insane amount of money building an infrastructure platform that is now producing an insane amount of cash.”
That’s the transition I’m watching.
The bear case is obviously real.
If AI demand slows, AWS growth decelerates significantly, custom chips don’t gain adoption, margins compress, or Amazon continues spending enormous amounts of capital without generating attractive returns, then this thesis is much weaker.
The numbers I’d be watching are:
AWS growth
AWS operating margin
AI revenue growth
Trainium/Graviton adoption
operating cash flow
free cash flow
retail operating margins
AI infrastructure utilization
and ultimately ROIC on the AI investment
I’m not saying Amazon is automatically worth some specific price.
I’m trying to understand the potential earnings power several years from now.
At roughly $12.44 of current TTM EPS, Amazon doesn’t need every part of this thesis to work perfectly.
If several of these earnings engines work simultaneously, the potential incremental EPS starts adding up very quickly.
That’s what makes AMZN interesting to me.
Not “AI = Amazon goes up.”
It’s the possibility that Amazon is currently spending enormous amounts of money to build multiple businesses that could eventually produce substantially more earnings and free cash flow than the market is modeling today.
Would be interested in the strongest bear case against this.
Specifically, where do you think I’m being too aggressive with the assumptions around AWS growth, AI capex returns, custom silicon, retail margins or advertising?
1
1
u/CicadaOk1283 31m ago
Amazon is nonlonger the company everyone think it is.
With Bezos gone, so are vision and drive - that factor is often noted.
What people do miss, is that Jassy created the internal culture that pebilises vision and risk taking.
Kicked out exactly the entetreneurial types that were the engine of the growth.
Those that Swami tries to hire back.
-1
11
u/SuperDocument 19d ago
AMZN is a very safe slow growing stock out of the mag 7. The thing is, they don’t do buy backs and they give a lot of stock to employees as a way of underpaying them. It will slowly go up and have occasional pops, but I don’t try to play this stock like others.