Is Amazon Stock Still an Undervalued Stock to Buy? | AMZN Stock Analysis

Añadido: 2026-05-03

[00:00:00]Amazon reported fantastic quarterly financial results. And every quarter when I review Amazon's results or when I review results for any company, right after they reveal the results and I play a game with myself, I like to look at the results first and then I tell myself, okay, based on these results, what do I think the stock price is doing in the aftermarket hours? And after I looked at Amazon's results, I said, you know, the stock price should be up by 5%, 4% uh at least. I wouldn't be surprised if it was up by more than that. And then right now, I'm looking at the aftermarket hours and Amazon stock price is up by only 1 and a.5%. So, I know why that's the case and I'll talk about that here. And still, I'm happy that the stock price is up by a percent and a half. I own Amazon stock and I've ranked Amazon as one of the best stocks you can buy. So, I'm happy to see the excellent quarter, even if the stock price is not yet reflecting those positive sentiments. In this video, I'll review all of the important details that you need to know about from the company's release and highlight the things that were really positive and highlight the reasons why maybe the stock price is not increasing by as much as you or even I think it should. I want to thank the Mly Fool for sponsoring this video. Visit fool.com/parkev for the 10 best stocks to buy now.

[00:01:28]>> So, Amazon reported sales increasing by 17% to 181.5 billion for the first quarter. This was better than what I was expecting. It was better than what the management team was forecasting. In fact, the management team was forecasting 13% revenue growth at the midpoint and 15% revenue growth at the best case scenario according to what the management team saw just 3 months ago and they actually reported revenue growth of 17%. And since the company provided that guidance 3 months ago, we had a war in Iran that led to oil prices surging. And so I would have thought that would have resulted in the company reporting quarterly revenue below its estimates, but in fact they delivered quarterly revenue above the even higher end of its estimates. So one one out of one here for Amazon starting right off the bat, outperforming expectations.

[00:02:27]Operating income increased to 23.9 billion compared to 18.4 billion in the first quarter of 2025. And just a few months ago, when Amazon gave us the guidance for how much profit they think they will generate, they said operating income will be between 16.5 billion and 21.5 billion. They actually reported operating income of 23.9 billion, a full $2.4 billion above the highest end of the guidance they provided for what they thought they would deliver in the current quarter. So top and bottom line much better than expectations even though we had a war that started that was a negative for Amazon holistically, right? Uh higher oil prices uh impact Amazon's top and bottom line. Consumers have less money to spend if they're spending more money on gas.

[00:03:24]So that hurts the company's sales. And then higher oil prices hurts the company's operations because it's an input to several parts of its business, higher energy prices. And so even despite that major headwind, Amazon still delivered results that outperformed expectations. And the primary reason for the outperformance was coming from its AWS segment, reporting revenue growth of 28% year-over-year to $ 37.6 billion. This was a lot better than I was hoping for as an Amazon shareholder myself. I'm very pleased with the acceleration in growth from this segment. And remember, this is Amazon's most profitable segment. And a little foreshadowing to what you're going to see later, the company's operating profit margin also expanded, especially in this segment.

[00:04:17]Not only did sales accelerate, but their operating margins increased as well. And that's good news because that means that they didn't generate this sales growth by offering discounts or promotions or lower prices. This was organic sales growth. This was organic increases in demand for its products and services which is even more important right now because they're spending so much money on data centers that they need to deliver acceleration in this segment and they delivered beyond what I was hoping for. So that was great news and this is already, you know, highlighting why I informed you in the introduction of the video after I looked at these results. I thought the share price would be up by at least at least 4% and I wouldn't be surprised if it was up by more than that in the aftermarket hours. But you can see it's up just 1.7% in the aftermarket hours. And the main reason why I think the stock price is not up as much as I think it should be is because of cash flow. Operating cash flow increased by 30% to a whopping $149 billion for the trailing 12-month period. But free cash flow, which incorporates the capital expenditures on the data centers, what's left over afterwards was just $1.2 billion. And that was of course because of how much they're spending on these data centers.

[00:05:43]So that's the primary reason why the share price is not increasing by as much is because investors are a little spooked by just how much Amazon is spending on these data centers. they are the most aggressive uh by a meaningful amount by at least 10% from the second place which is Alphabet in terms of the estimates for how much they will be spending on data centers which is facilitating their AI business and investors are spooked. They're worried that Amazon is spending too much. So AWS growing 28% was the fastest growth in any quarter going back 15 quarters almost four years. It's on a very large base, right? So, you know, 15 quarters ago, a 28% growth rate was more achievable because it was coming off of a smaller base. Amazon's AWS segment has grown meaningfully over these past 3 or 4 years. And so, to grow 28% on top of that larger base is even more impressive than it was 15 quarters ago. The chips business is also extremely impressive.

[00:06:48]It topped $20 billion in revenue run rate and it's still growing triple digits year-over-year. This is now multiple quarters where this chip segment is growing by triple digits year-over-year. Advertising grew to over $70 billion on a trailing 12-month basis and unit growth in the stores reached 15%, the highest since the end of the COVID era lockdowns. Amazon really firing on all cylinders here. So the chips business is truly thriving and this is impressive. So they have chips uh that are GPUs and they have chips that are CPUs and they have customers that are signing on to purchase those.

[00:07:28]And so these are similar to the chips that Nvidia and Intel and AMD are selling into the data centers, but it's Amazon's proprietary chips. And they've secured commitments from OpenAI to consume approximately 2 gawatt of Tranium capacity, which begins ramping up in 2027. So, we haven't even seen the revenue impacts of this deal with OpenAI yet. And then they announced a deal with Anthropic for 5 GW of current and future generations of their Tranium chips. And then they signed an agreement with Meta which was already a customer to deploy tens of millions of its Graviton chips, which are the CPUs, the Tranium chips or the GPUs, and intensive workloads behind its agentic AI efforts. So, Amazon securing deals with some of the largest customers of data centers and data center compute capacity with its chips, signaling just how effective and performant these chips are. Of course, they're not the best in class, right?

[00:08:31]Nvidia still has the best in class by a large amount, but these are price performant. Not everyone wants and not everyone needs all of their chips to be Nvidia chips. they can have some diversification for different use cases, right? Uh sometimes you're using these chips to train large language models.

[00:08:54]Sometimes you're using these chips for inferencing, meaning answering questions that people might ask in your large language model. So depending on your need, you might be able to use a different chip that cost less and thereby deliver better price performance. And that's where Amazon is sneaking in here and capturing a meaningful market. So remember, Amazon also has a driverless business in Zuks.

[00:09:20]It's a purpose-built robo taxi that's now in Austin and Miami. It expanded services in San Francisco, Las Vegas, and it announced an agreement with Uber to bring the Zuks robo taxi in Las Vegas in Los Angeles. Zuks has already driven 2 million miles and carried 350 plus riders in its robo taxi. And as you've probably heard me say many, many times, Amazon and Alphabet and Uber and Qualcomm and so many companies that if you're bullish on driverless cars and you're bullish on the driverless car technology, there are so many better ways to invest in that than with Tesla stock. Tesla stock is trading at ridiculously expensive valuations and there are better ways to invest with more upside at lower price and lower risk into the driverless car business than with Tesla. But Tesla's by far the best at marketing that business and therefore it's capturing the best price premium in its share price. Amazon also guiding to robust revenue growth in the second quarter forecasting net sales will grow by 16 to 19% compared with the same quarter last year. At the midpoint that would be about 17 1.5% revenue growth which at the midpoint would be an acceleration from the first quarter. In the first quarter remember right now they just reported revenue growth of 17%. So at the midpoint 17 a.5% that would be an acceleration from their first quarter. So they expect improvement and they've seen improvement in the business from an already robust first quarter. Similarly with operating income, they're forecasting 22 billion at the midpoint compared with 19.2 billion in the same quarter last year.

[00:11:08]So continued increases in operating profit. But here's why the stock price is not increasing by much more. In the most recently completed quarter, they generated $26 billion in cash flow from operations, which was a nice improvement from the $17 billion. That's uh more than 50% growth in cash flow from operations. That's great. But what's spooking investors is they spent even more in purchases of property and equipment, which in other words is the data centers, up to $44.2 billion, which is up a lot more than 50%. They spent about $2 billion in this category in the same quarter last year. So, not only is it up significantly from the same quarter last year, but it's also much more than the cash flow they generated.

[00:11:52]So, $18 billion more they spent in property and equipment than they generated in cash flow from operations.

[00:12:00]That's what's spooking investors a little bit. They're spending so much on these data centers, even more than what they're generating organically throughout the business. So, they needed to borrow. they needed to borrow to fund these investments. Otherwise, they would risk their cash balance being uh dangerously low. So, they borrowed over $53 billion in the quarter in order to fund some of these large investments.

[00:12:25]Still, the balance sheet is strong, right? They have $101 billion in cash and $41 billion in marketable securities. So, they still have over $142 billion in cash and equivalents.

[00:12:38]But if they keep at this pace where they're spending almost $20 billion more than they're bringing in, this cash won't last very long. So investors are cautious on Amazon to say the least. But here's the big positive, right?

[00:12:52]Operating profit margin in the AWS segment, 37.7% uh increasing from 35% in the previous quarter and over the trailing 12-month period at 35.2%.

[00:13:05]So it's net sales growth in the segment is accelerating. You can see the net sales growth accelerating from 17% to 20% to 24% to 28%. So you've got 1, two, three consecutive quarters of accelerating revenue growth in its most important segment. That's the big takeaway here. That's the big positive from Amazon's most recent result. So as a result of these figures, I've updated my intrinsic value calculation for Amazon. I now see the business worth $300 per share compared to the current market price at 263.

[00:13:41]I still see this as an excellent undervalued stock investors can buy. I will be reiterating my rating of Amazon as one of the top stocks you can buy right