Amazon is three businesses in one: the largest online store, the largest cloud (AWS) and a fast-growing advertising arm. AWS is accelerating on AI demand, but Amazon is spending more than $200 billion a year to build data centers, which has pushed free cash flow below zero. The price assumes that spending pays off handsomely.
The cash-flow model’s bear-to-bull range, the probability-weighted value, the price and its 52-week range. The copper line marks the base case; the fine dotted line is today’s close.
Written on October 20, 2026, before its third-quarter results later this month. Figures are from the company’s filings and releases unless noted. Not investment advice. The author holds AMZN shares.
Amazon reports three segments. North America and International are the store: first-party retail, third-party seller services, Prime subscriptions and advertising. AWS rents computing, storage and AI infrastructure to companies and governments.
Most of the profit comes from AWS and advertising, which ride on the store’s traffic. Retail itself earns thin margins but funds the logistics network that keeps customers loyal. Amazon also owns a large stake in Anthropic, the AI company, which it does not value in its operating results.
Takeaway. Value comes mostly from AWS and ads; the store is the moat that feeds them.
Second-quarter revenue rose 20% to $200.6 billion. AWS revenue grew 37% to $42.2 billion with $16.6 billion of operating income, and advertising grew 26%. Net income of $62.6 billion was swollen by a $53.4 billion gain, mostly from revaluing the Anthropic stake, so it says little about the business.
The cost is in cash flow: free cash flow over the last twelve months was negative $7.6 billion as Amazon defines it, because capital spending (net of proceeds) rose $66 billion in a year, to $169 billion. Amazon nets $4.0 billion of proceeds from equipment sales and incentives against capital spending; the five-year table below uses gross capital spending ($173.0 billion), which gives negative $11.6 billion. Capital spending for 2026 is guided to about $220 billion. Guidance for the third quarter is $197–202 billion of revenue and $22.5–26.5 billion of operating income.
| FY2021 | FY2022 | FY2023 | FY2024 | FY2025 | TTM Jun 2026 | |
|---|---|---|---|---|---|---|
| Revenue | $469.8B | $514.0B | $574.8B | $638.0B | $716.9B | $775.7B |
| Operating margin | 5.3% | 2.4% | 6.4% | 10.8% | 11.2% | 12.1% |
| Net income | $33.4B | −$2.7B | $30.4B | $59.2B | $77.7B | $135.3B |
| Operating cash flow | $46.3B | $46.8B | $84.9B | $115.9B | $139.5B | $161.4B |
| Capital spending | $61.1B | $63.6B | $52.7B | $83.0B | $131.8B | $173.0B |
| Free cash flow | −$14.7B | −$16.9B | $32.2B | $32.9B | $7.7B | −$11.6B |
Operating margin rose from 2% in 2022 to about 12% as AWS and ads grew faster than retail. Net income in the last twelve months includes the Anthropic gains. Capital spending has more than doubled since 2024, so free cash flow has fallen even as profit rose.
Amazon held about $123 billion of cash against $133 billion of debt in June, so net debt is small. It pays no dividend and buys back little; every spare dollar goes into data centers, chips (Trainium) and the Leo satellite network. The Anthropic stake is a sizeable asset that is not included in this valuation, so it is upside to the numbers below.
| Assumption | Base case | Basis |
|---|---|---|
| Revenue, 2026 | $810B | First half plus Q3 guidance |
| Growth, 2027 and 2028 | 12%, then 11% | AWS in the 20s, retail high single digits |
| Growth after that | Fades to 3% by year 10 | A straight glide to long-run economic growth |
| Operating margin | 13% rising to 18% by 2031 | More AWS and advertising in the mix |
| Net investment | $130B, $100B, $70B, $50B, then $1 per $2 of new revenue | The data-center build peaks, then normalises |
| Tax rate | 19% | Below the 21% federal rate after credits |
| Discount rate | 10.8% | Beta 1.33, 4.5% premium, a little debt |
| Terminal growth | 3.0% | With a 20% return on new capital |
| Bear | Base | Bull | |
|---|---|---|---|
| Growth, 2027 / 2028 | 8% / 7% | 12% / 11% | 15% / 14% |
| Long-run operating margin | 14% | 18% | 22% |
| Discount rate | 11.8% | 10.8% | 9.8% |
| Value per share | $74 | $153 | $267 |
| Probability | 25% | 50% | 25% |
Weighted 25/50/25: $162.
| Discount rate | 8.5% | 9.0% | 9.5% | 10.0% |
|---|---|---|---|---|
| Value per share | $231 | $209 | $190 | $175 |
Every figure in this valuation comes from one model script, rerun and checked against this page each time the site is built. The XLSX model rebuilds it in live formulas: change any blue input and every year’s cash flow, the bridge to the value, the scenarios and the sensitivity table recalculate.
| To reach today’s price, you need | Instead of |
|---|---|
| A long-run operating margin near 29% | 18%; Amazon’s best year so far was about 12% |
| Revenue growth of about 23% a year for two years | 12% and 11% |
| A discount rate of about 7.9% | 10.8% |
The market is betting that the $220 billion a year going into AI infrastructure earns AWS-like returns. The Anthropic stake, left out of the model, covers part of the gap.
| Risk | Why it matters |
|---|---|
| AI returns | If AI demand cools, Amazon is left with expensive capacity and falling AWS margins. |
| Cash flow | Negative free cash flow leaves less room for error and more reliance on debt. |
| Regulation | The U.S. antitrust case against the store, and scrutiny of AWS in Europe. |
| Consumer slowdown | Retail and ads both depend on spending. |
Upside: Trainium chips cutting AWS costs, advertising in Prime Video, Leo satellite internet and the value of the Anthropic stake.
AWS growth is accelerating, but capital spending has turned free cash flow negative. The price assumes long-run margins higher than Amazon has ever earned.
What would change the value: AWS growth staying above 30%, operating income against guidance, and any change to the $220 billion capex plan in the next report would move the value.
Ranges, not three cases. The expected value is the average of 4,000 runs of this report’s own model, with every input drawn from a range: the base case is the middle, and the bear and bull cases are the 10th and 90th percentiles. Business inputs move together; the discount rate moves on its own. The 25/50/25 weighting in the valuation section gives $162. How the ranges work
Two different questions. The rating is relative: it asks whether the stock is cheaper or dearer than the S&P 500 on the same assumptions. The absolute view asks whether it is worth its price at all: on its own the stock trades above our estimated value, which is 40% below the price.
On the same assumptions every report uses (a 5.15% Treasury yield and a 4.5% equity premium), the S&P 500 itself is worth about 68% of its price. The rating compares each stock with that: Buy if it is at least 15% cheaper than the market on this basis, Sell if at least 15% dearer, Hold in between. It is the same rule for every company, whoever owns it. The rating depends on that assumption: it would be Hold if the index grows 6% a year and Sell at 10%, against 8% here. How ratings work
| Measure | Amazon | Industry median | Rank | |
|---|---|---|---|---|
| Revenue growth, last fiscal year | 12.4% | 4.9% | 9 of 47 | Better than the median |
| Operating margin | 12.1% | 15.0% | 30 of 45 | Worse than the median |
| Price to earnings | 20.0× | 19.0× | 24 of 46 | Worse than the median |
| Free cash flow yield | −0.4% | 4.5% | 45 of 47 | Worse than the median |
Peers: the 46 other S&P 500 companies in Consumer Discretionary with complete data (ABNB, APTV, AZO, BBY, BKNG, CCL, CMG, CVNA, DASH, DECK, DHI, DPZ, DRI, EBAY, EXPE, F, GM, GPC, GRMN, HAS, HD, HLT, LEN, LOW, LULU, LVS, MAR, MCD, MGM, NCLH, NKE, NVR, ORLY, PHM, RCL, RL, ROST, SBUX, TJX, TPR, TSCO, TSLA, ULTA, WSM, WYNN, YUM). Last twelve months where reported, from SEC filings; prices from the latest close. A lower price-to-earnings ratio ranks higher. These figures update with each data run; the rating does not.
The spending is a bet on AI that only pays off if AWS keeps its margins as it grows.