Buy Amazon Stock at All Time Highs? - What You Need to Know

Added: 2026-05-07

[00:00:00]So, I'm sure that we all have noticed that Amazon stock has been on fire. The stock is up almost 40% over the past month. It just had a great Q1 earnings report and it seems like there is new news coming out with this business every single day right now. So, in today's video, I want to share why I significantly increased my Amazon position after the first quarter earnings results. So, you can probably tell that I thought they were very bullish and initially I did not think that Amazon stock deserved to sell off at all. So, the day after they reported earnings when the stock was down, I use that as an opportunity to increase my position in Amazon. And I added quite a bit. So, in today's video again, I want to go through the first quarter earnings report and explain why surprisingly Amazon stock in my opinion is still offering value today. So with that being said, let's just hop right into it. All right, so here we can see that Amazon increased their revenue by 17% to 181.5 billion for the first quarter. On a constant currency basis though, they did increase revenue by 15% which is going to be important here in a minute. Then we can see that AWS sales increased by 28% year-over-year to $ 37.6 billion.

[00:01:14]This also means that Amazon's AWS sales are continuing to accelerate and in a big way. Operating income also increased to 23.9 billion for the first quarter compared with 18.4 billion last year which means that operating income increased by 30% year-over-year. North America operating income increased by 43%. International operating income increased by 40% and AWS operating income increased by 23% which means that AWS's operating margins were down slightly on a year-over-year basis.

[00:01:46]Moving on, we can see that operating cash flow is up 30% in the trailing 12 months, which is just insane. However, at the same time, free cash flow decreased to $1.2 billion for the trailing 12 months. So, right away, just by taking a look at the headline results, I thought that this was a great earnings report from Amazon. And the number one metric that I am focusing on is the company's operating cash flows.

[00:02:10]Because while the hyperscalers are investing so much money into capex, what I really want to see is are the operations of the business producing more and more cash because I think that will be a reflection on if the capex they're spending is actually paying off.

[00:02:25]So seeing Amazon grow their operating cash flow by 30% is exact well it's exactly what I wanted to see and this does suggest to me that the capex is paying off and the actual cash flow potential of the business is growing.

[00:02:38]However, this is at an expense of the company's free cash flow. And we can see that based on their self-reported free cash flow metric, they only generated 1.2 billion over the past year. So, Amazon is currently saying, "Screw your free cash flow. We are going allin on AI, building out AWS, and we are investing all of our free cash flow back into capex and growth, which I actually want to see right now so that Amazon can continue capturing the opportunity in front of it." Moving on to the next screenshot. This is a quote from Amazon CEO Andy Jasse. AWS is growing 28%, our fastest growth in 15 quarters on a very large base. Our chips business topped a $20 billion revenue run rate, growing triple digits year-over-year.

[00:03:24]Advertising grew to $70 billion in the trailing 12 months, and unit growth in our stores reached 15%, which was the highest since the tail end of COVID lockdowns. We're in the middle of some of the biggest inflections of our lifetime. We're well positioned to lead and I'm very optimistic about what's ahead for our customers and Amazon. And I completely agree with Andy Jasse. And what's interesting is so many different segments of Amazon's business are firing on all cylinders and they are truly capturing this inflection point with artificial intelligence. And I think that Amazon is like the sleeper stock where it's not really responding well to all of the AI developments that the business is seeing despite it being one of the largest beneficiaries from AI overall. Now, moving on to their guidance for the second quarter, they're expecting revenue to come in at about $196 billion or to grow between 16 and 19%.

[00:04:19]This guidance also anticipates an unfavorable impact from foreign exchange. Operating income is also expected to be between 20 and 24 billion, which means that operating income is expected to grow on a year-over-year basis once again. Now, why I think that this guidance right here is actually bullish is because Amazon would have grown its revenue by 15% in the first quarter, as we saw, without foreign exchange tailwinds. Now, in the second quarter, they're actually expecting a foreign exchange headwind, a very slight one, but they're still expecting to grow their revenue by about 17.5% in the middle of their range. This means that their quarter-over-arter revenue growth rates are actually projected to continue accelerating on an FX neutral basis. So, Amazon is actually expecting the business to continue accelerating into the second quarter, which I don't think a lot of people are talking about, but I think it's very bullish, especially at Amazon's size.

[00:05:14]All right, now moving on to the next screenshot. I thought that this one was very interesting and worth pointing out, and it's another thing that I don't think a lot of people are talking about.

[00:05:21]So, here we can see that the operating margin on North American sales increased by only 1.6% year-over-year. However, this led to a 42% increase in North American operating income and a net $2.8 billion increase in operating income overall. This shows how much operating leverage Amazon is unlocking because Amazon is producing so much revenue that even a small increase in margins is having a huge impact on the business's profitability. This next screenshot shows Amazon's different segments and the revenue growth rates of each segment. So here we can see that thirdparty seller services had $41.6 billion in revenue and saw 14% year-over-year growth, which means that it did accelerate in a very large way on a year-over-year basis. Advertising services saw revenue increase by 24% year-over-year and also saw an acceleration. Subscription services increased by 15% year-over-year and once again saw an acceleration. AWS increased by 28% as we already saw and saw an acceleration year-over-year. These are all huge businesses doing well over $10 billion in quarterly revenue. They're also highly profitable business segments for Amazon. And they are all seeing revenue accelerate right now. And I know that when people talk about Amazon, they tend to heavily focus on AWS and pretty much just talk about AWS. But Amazon actually has multiple large, highly profitable businesses that are all accelerating right now. And I think that this is extremely bullish for Amazon and shows that the business is truly firing on all cylinders. This next screenshot shows the quarterly revenue from AWS specifically and the year-over-year growth rates to AWS's revenue. And you can clearly see that AWS is experiencing a very large reaceleration and posting growth rates of 28.4% on $37.6 billion of quarterly revenue.

[00:07:21]This is absolutely insane. And it sounds like AWS's revenue growth rates are going to continue accelerating because the business is seeing a tremendous amount of demand. And this is where the focus of Amazon's capex is going to is continuing to grow and build out AWS. I also found this incredible chart on X which is made by Jamon Ball and I would recommend going and giving him a follow because he updates these charts every single quarter. Now what these charts show is the percent growth and the net growth of Azure, Google Cloud and AWS.

[00:07:53]We can clearly see that Google Cloud had the strongest year-over-year quarter by far with 63% year-over-year revenue growth, which was just ridiculous. AWS also strongly accelerated, but Azure isn't seeing the same acceleration as AWS and Google Cloud, which is why I think Microsoft stock did not respond well after earnings. So, the headline numbers for Google do look incredible. I mean, again, 63% year-over-year Google Cloud revenue growth. And I think that this is the main reason why Google's stock saw so much buying after its earnings report. But now focus your attention to the net dollars of revenue added. Google still won, but AWS was not far behind. Google Cloud is just growing from such a smaller base, which makes the percent numbers look incredible. And don't get me wrong, they are incredible.

[00:08:44]But AWS had almost just as strong of a quarter based on net revenue added. It is just adding this revenue off of a much larger base. And this is partly why I was shocked to see Amazon's stock fall after its earnings report while Google was skyrocketing because the true annual recurring revenue value accretion was almost identical to Google. Azure did lag hard though with only $5.1 billion of annual recurring revenue gained in this quarter. And overall, I do believe that this suggests that the capex that these businesses are doing across the board are continuing to pay off. So now, let's head into the transcript and some of the highlights that I found. So here, Andy Jasse said, AWS is now a 150 billion annualized revenue run rate business. It's very unusual for a business to grow this fast on a base this large. The last time we saw growth at this clip, AWS was roughly half the size. We've never seen a technology grow as rapidly as artificial intelligence.

[00:09:44]To put our growth into perspective, 3 years after AWS launched, we had a $ 58 million revenue run rate. In the first 3 years of this AI wave, AWS's AI revenue run rate is over $15 billion, nearly $260 times larger. Bedrock saw 170% growth in customer spend quarter. It processed more tokens in the first quarter than all prior years combined.

[00:10:10]So here Andy Jasse is simply saying that AWS's AI business is exploding. It is growing so much faster than AWS as a whole did relative to where these two businesses were at the same point.

[00:10:24]Bedrock also saw 170% growth in one quarter and processed more tokens in the first quarter than all prior years combined. And again, I think that this suggests that AWS's AI business is absolutely exploding. But moving on to the next screenshot, this one says, "Our chips business continues to grow rapidly and is larger than what a lot of folks thought. We saw nearly 40% quarter overquarter growth in Q1, and our annual revenue run rate is now over 20 billion and growing tripledigit percentages year-over-year. This somewhat masks the size. If our chips business was a standalone business and sold chips produced this year to AWS and other third parties as other leading chip companies do, our annual revenue run rate would be $50 billion. As best as we can tell, our custom silicon business is now one of the top three data center chip businesses in the world. The speed at which we've gotten here is extraordinary. We now have over $225 billion in revenue commitments for Tranium. Our Tranium 2 chip has about 30% better price performance than comparable GPUs and is largely sold out.

[00:11:32]Tranium 3, which just started shipping at the start of 2026 and is 30 to 40% more price performance than Tranium 2, is nearly fully subscribed. Much of Trrenium 4, which is still about 18 months from broad availability, has already been fully reserved. AI is commonly seen as a GPU story, but the rise of Agentic workflows, real-time reasoning, code generation, reinforcement learning, and multi-step task orchestration is driving massive CPU demand as well. That's why Meta chose Graviton, which delivers up to 40% better price performance than any other 86 processors and is now used by 98% of the top 1,000 EC2 customers. Nobody has a better set of chips across AI and CPU workloads than AWS. And this right here is one of the main reasons why I significantly increased my position in Amazon after earnings is because they have one of the largest chips businesses in the world and their chips business is growing by over 100% on a year-over-year basis. To put this in perspective, even on their actual $20 billion revenue run rate from their chips business, they're larger than AMD's data center business because AMD produced about $17 billion in the trailing 12 months. They are reporting earnings after the close today. So, this number is probably going to increase once again. But this is just to put into perspective how large Amazon's chips business is. And if they were selling to third parties, they would be at $50 billion in annual revenue run rate, which would be more than double AMD's business size. And you can clearly see that chip stocks in the stock market, like Intel and AMD, are absolutely skyrocketing. But the funny thing is is that Amazon arguably has an even better chips business than these two companies. But it doesn't necessarily seem like Amazon stock is responding to all of the demand that it's seeing despite it having arguably the better business. So I think that there is a massive amount of value within Amazon because they have this massive chips business that's also scaling incredibly well and they say that they have over $200 billion of backlog for their tranium chips. So there is a massive amount of demand for their chips. They seem to have some of the best chips in the world. Their chips business is growing over 100% year-over-year and it is massive. So, I think that Amazon is surprisingly one of the ways to still get access and exposure to the chips industry and all of the demand that the chips industry is seeing at a very fair price as we're going to see later on when I start to do my DCFS. So, let's move on to the next screenshot where Andy Jasse said, "Of the AWS capex we intend to spend in 2026, much of that will be installed in future years. We have high confidence this will be monetized well as we already have customer commitments for a substantial portion of it and that it will yield compelling operating margins and return on invested capital. As we've been sharing, the faster AWS grows, the more short-term capex will spend. AWS has to lay out cash for land, power, buildings, chips, servers, and networking gear well in advance of when we can monetize it. Typically 6 to 24 months before we start billing customers. However, in times of very high growth, like right now, where the capex growth meaningfully outpaces the revenue growth, the early years free cash flow is challenged until these initial trenches of capacity are being monetized and revenue growth outpaces capex growth. So, what Andy Jasse is saying here is that the business model of AWS requires Amazon to spend a significant amount of capital upfront to build the data center before they can actually monetize it, which is obvious, right? and they have been through these cycles before. So, the funny thing about Amazon is actually when they're spending a significant amount of capex, the future free cash flow should skyrocket and grow significantly. And we've seen this type of cycle before. And this is what gives me confidence and faith that while Amazon is going through this massive capex cycle, it will actually produce a significant amount of free cash flow over the longer term in future years. And I'll show you what I mean on Stock Unlock. So, let's take a look at Amazon's free cash flow history. And we can see that from 2003 to 2009, they were clearly growing free cash flow very well. Well, when we continue to zoom out to about 2013, we can see that Amazon's free cash flow was declining significantly. And this was a period where they were going through a very large capex cycle, building out their distribution warehouses and also investing in the initial AWS infrastructure. So, this was the first real capex cycle that Amazon went through. So, now let's take a look at how this turned out. And we can see that after this capex cycle, Amazon's free cash flow exploded once again. And we can see that it hit an all-time high and continued to grow and grow and grow and grow until about here in 2016 when they went through another capex cycle into about 2018. So this was the next capex cycle that Amazon went through where their free cash flow started to decline again. Well, let's take a look at what happened. And after that small capex cycle, Amazon's free cash flow continued to grow and scale and absolutely explode. Entered a high of $27 billion right in 2020. Then during 2020, Amazon was having to invest a significant amount of money into more capex to build out their warehouses and distribution capacity. And free cash flow actually went negative in 2021 and into 2022.

[00:16:58]Well, let's take a look at how this played out. And we can see that Amazon's free cash flow afterwards skyrocketed to new highs of 48 billion in 2023 to 2024.

[00:17:08]Now, Amazon is going through another capex cycle right now. And they're trailing 12 months free cash flow is actually negative. But based on Amazon's history, every single time they have gone through a capex cycle, their free cash flow has always exploded afterwards and hit brand new all-time highs. So, what I like to do personally is take a look at Amazon's operating cash flows, which is the actual amount of cash flow that the business's operations are producing. And we can clearly see that it is at an all-time high of roughly 149 billion. And it has been accelerating over the past few quarters. And again, this to me suggests that Amazon's capex is actually paying off and the true cash flow of the business is continuing to grow. I also have a screenshot that shows that analysts are expecting Amazon's operating cash flows to grow to 285 billion by 2028, which means that they're expecting it to roughly double over the next 3 years. This is a 26% compounded annual growth rate to Amazon's operating cash flows. Now, if we also take a look at Amazon's long-term historical price to operating cash flows, we can see the average has been 26.6. The latest is at 20.1, which is still well below how Amazon stock has traded historically. So, surprisingly, Amazon is still trading below its long-term average price multiples despite the stock being at all-time highs. So, now let's run a couple of DCFs for Amazon, and I want to show you why I think the stock is surprisingly still potentially undervalued here. So over the next three years, I have Amazon growing their operating cash flow by 16% annually, which is well below what analysts are expecting and the 30% operating cash flow growth rate that the business is currently seeing. I also have Amazon trading for about 20 times operating cash flow, which means the stock sees no more multiple expansion and remains below its long-term historical averages. While in this DCF, we still get a 14.6% 6% compounded annual growth rate to Amazon share price and a fair value of $39 per share, which does suggest that Amazon stock is undervalued today. And this is still with only a 16% compounded annual growth rate to operating cash flow. Now, if Amazon can grow their operating cash flow by 20% annually over the next 3 years, which is still well below analyst expectations and see the multiple continue to expand back up to historical averages or closer to historical averages of 22 due to the continued accelerated growth of the underlying business, then the stock could compound by 22% annually over the next 3 years and the fair value would be $376 per share. And I think that this DCF right here is not unrealistic because Amazon's underlying business is seeing a tremendous amount of demand, more demand than they have capacity. They're investing a record amount of capital into the future growth of the business.

[00:19:59]And it seems like the business is firing on all cylinders. Its operating cash flows are also growing by over 20% per year right now. And it seems like they're projecting to continue seeing an acceleration to the top line of the business. So overall, I thought that Amazon's earnings report was fantastic.

[00:20:15]Every metric that I care about is growing and accelerating. And surprisingly, the business is still not looking expensive in the stock market despite it selling right near all-time highs. Its price to operating cash flow is still below its long-term historical averages at the same time as the business is accelerating. Analysts are also expecting Amazon's growth rates to maintain at 26% annually over the next 3 years. And even if Amazon misses those that guidance and those expectations, then the stock still does look cheap and could produce an over 10% annual return over the next 3 years. Now, lastly, as we saw from their earnings call transcript, Amazon's chips business is exploding. It's doing over $20 billion in annual revenue. It's more than doubling year-over-year. And I think that it's one of the best chips businesses in the world, but the market isn't necessarily pricing Amazon for that. So again, I think that Amazon is one of the best ways to get exposure to the growth of the chips industry and all of the demand from the chips industry while still getting a very fair price today. And that is one of the main reasons why I have significantly increased my position in Amazon because I think that the market is not necessarily pricing Amazon for fair value based on what is actually within the business. So, I think that Amazon's business is firing on all cylinders, and I think that the stock is still offering value here today. But with all that being said, that is going to wrap up my Amazon earnings video. And those are all of the reasons why I have decided to increase my position in Amazon after earnings. If you did enjoy this video, then please remember to leave a like on it. And if you want to see more videos like this, then please consider subscribing to my channel as well. As always, thank you so much for tuning in.

[00:21:56]I truly do appreciate it and I hope to see you again in my next