Amazon Stock Analysis: Is AMZN Still a Buy for Long-Term Investors?

 

1. Business Overview

Amazon is a collection of several very different businesses:

• E-commerce / Retail

• Amazon Web Services (AWS)

• Advertising

• Prime subscriptions

• Logistics and fulfilment

• AI and cloud infrastructure

The most important point is that Amazon’s retail business attracts customers, but AWS and advertising generate most of the profit.

Amazon earns money from five major engines:

1. Online retail and third-party marketplace fees

2. AWS cloud computing

3. Advertising

4. Prime subscriptions

5. Logistics and fulfilment services

Business Segments

North America Retail

This includes:

• Online product sales

• Third-party seller services

• Prime subscriptions

• Advertising attached to the marketplace

Retail is Amazon’s largest business by revenue, but not by profit.

International Retail

This includes Amazon’s operations outside North America.

Historically, international retail has been much less profitable because Amazon is still investing heavily in logistics and scale.

AWS

AWS is Amazon’s most valuable business.

AWS provides:

• Cloud infrastructure

• Storage and databases

• AI infrastructure

• Enterprise software tools

AWS is much more profitable than retail.

Approximate FY2025:

• AWS revenue: ~US$145 billion

• AWS operating margin: ~32–34%

• AWS operating profit: ~US$47–50 billion

Advertising

Amazon has quietly become one of the largest advertising companies in the world.

Advertisers pay Amazon to:

• Promote products in search results

• Display ads on Amazon’s marketplace

• Reach Prime customers

Advertising is attractive because it is:

• High margin

• Growing quickly

• Capital-light

The Real Engine of Profit

The real engine of profit is not retail.

Amazon’s retail business creates:

• Customer traffic

• Prime membership

• Seller activity

That traffic then supports:

• Advertising

• Marketplace fees

• AWS cross-selling

The highest-quality businesses inside Amazon are:

• AWS

• Advertising

• Prime

These businesses deserve much higher valuation multiples than retail.

2. Industry & Market Structure

Amazon operates in:

• E-commerce

• Cloud computing

• Digital advertising

• Logistics

• AI infrastructure

E-Commerce

Amazon is the dominant e-commerce platform in the United States.

Approximate US e-commerce market share:

• Amazon: ~38–40%

However, e-commerce is still only a minority of total retail spending.

This means Amazon still has room to grow.

Cloud Computing

Approximate cloud market shares:

• AWS: ~30–31%

• Microsoft Azure: ~24–25%

• Google Cloud: ~11–12%

AWS remains the largest cloud platform.

Advertising

Amazon is now the third-largest digital advertising company after:

• Google

• Meta

Approximate advertising revenue:

• ~US$60–70 billion annually

3. Competitive Position & Moat

Amazon has several important competitive advantages.

1. Scale and Logistics

Amazon has one of the largest logistics networks in the world.

Key statistics:

• Hundreds of fulfilment centres

• Millions of packages delivered daily

• 250 million Prime members globally

This scale gives Amazon:

• Faster delivery

• Lower cost per package

• Better customer experience

2. Prime Ecosystem

Prime is one of Amazon’s strongest moats.

Prime members receive:

• Fast shipping

• Video

• Music

• Discounts

Prime creates:

• Customer loyalty

• More purchases

• Higher lifetime value

3. Marketplace Network Effects

Amazon’s marketplace becomes stronger as:

• More sellers join

• More products become available

• More customers use Amazon

That creates a self-reinforcing cycle.

4. AWS

AWS has a powerful moat because businesses build their IT systems on AWS.

Once a company uses AWS, switching is difficult and expensive.

Biggest Competitors

• Retail: Walmart, Costco, Temu, Shein

• Cloud: Microsoft Azure, Google Cloud

• Advertising: Google, Meta

4. Revenue Drivers & Unit Economics

Main revenue drivers:

• AWS growth

• Marketplace fees

• Advertising growth

• Prime subscribers

• Retail margin improvement

Approximate FY2025 revenue mix:

• North America retail: ~60%

• International retail: ~20%

• AWS: ~15%

• Advertising and subscriptions: ~5%

However, operating profit is very different:

• AWS: ~55–60% of total operating profit

• Advertising: ~20%+

• Retail: much smaller share

Historical Growth

Approximate 5-year growth:

• Revenue CAGR: ~12–13%

• EPS CAGR: much higher but more volatile

AWS and advertising are the most important growth drivers.

Recent growth:

• AWS revenue growth: ~18–20%

• Advertising growth: ~18–22%

5. Financial Quality

Income Statement

Recent FY2025 / early FY2026 numbers:

• Revenue: ~US$700–720 billion

• Operating income: ~US$80–85 billion

• Net income: ~US$55–60 billion

• EPS: ~US$5.20–5.60

Approximate revenue breakdown:

• Online stores and marketplace: ~US$500+ billion

• AWS: ~US$145 billion

• Advertising: ~US$65 billion

Profitability Ratios

Metric	Amazon	Why It Matters
Gross Margin	~49–50%	Improved because of AWS and advertising
Operating Margin	~11–12%	Still lower than Microsoft or Google
Net Margin	~8%	Retail dilutes profitability
ROE	~20–22%	Strong, but not exceptional
Free Cash Flow Margin	~5–6%	Improving, but capex remains high

Historical Financials

FY	Revenue (US$b)	Net Income (US$b)	EPS (US$)	Operating Margin	Free Cash Flow (US$b)
2021	~470	~33	~3.20	~5.5%	~46
2022	~514	~-3	~-0.27	~2.4%	~-12
2023	~575	~30	~2.90	~6.4%	~32
2024	~640	~48	~4.50	~9.5%	~52
2025	~710	~58	~5.40	~11.5%	~40–45

The key point is that Amazon has become much more profitable over the last two years because:

• Retail efficiency improved

• AWS recovered

• Advertising grew quickly

Balance Sheet

Key statistics:

• Cash and investments: ~US$95–105 billion

• Debt: ~US$65–75 billion

• Net cash: ~US$25–35 billion

Capital Expenditure

Amazon spends more on capex than almost any company in the world.

Recent capex:

• FY2023: ~US$55 billion

• FY2024: ~US$65 billion

• FY2025: ~US$75–80 billion

Most of this goes toward:

• Warehouses

• Logistics

• AWS data centres

• AI infrastructure

6. AI Strategy and Future Investment

Amazon is investing heavily in AI, mainly through AWS.

The company is investing in:

1. AI infrastructure

2. Custom AI chips

3. Anthropic partnership

4. AI services on AWS

AWS AI

AWS offers:

• Bedrock

• AI infrastructure

• Foundation models

• AI cloud services

This is important because many companies may build their AI applications on AWS.

Anthropic

Amazon has invested roughly ~US$8 billion in Anthropic.

This gives Amazon access to:

• Claude AI models

• A major AI partner

Custom Chips

Amazon has built its own AI chips:

• Trainium

• Inferentia

Why this matters:

• Reduces dependence on Nvidia

• Lowers cost

• Improves AWS competitiveness

Future Potential

If AWS becomes one of the main platforms for AI, Amazon could benefit enormously.

However, AI is also a risk because Amazon is spending very heavily.

7. Risk

Amazon remains one of the strongest businesses in the world, but it also has more risk than investors often realize because the company is now extremely dependent on a few major engines:

• Amazon Web Services (AWS)

• AI spending

• E-commerce margins

• Advertising growth

The biggest issue is that Amazon increasingly looks like a cloud-and-AI company wearing the clothing of a retailer. That creates very different risks than the market was used to a decade ago.

a. AI Spending / Capital Intensity Risk (Largest Near-Term Risk)

Amazon plans to spend roughly US$200 billion in 2026, mostly on AI infrastructure, AWS data centers, chips, and logistics. This is the largest capital spending program in the company’s history. 

The risk is simple:

• Amazon spends too much

• AI demand does not grow fast enough

• Returns on those investments disappoint

Investors currently assume Amazon’s huge AI spending will eventually lead to:

• Faster AWS growth

• Higher margins

• Greater long-term dominance

But if AI turns out to be less profitable than expected, Amazon may be left with:

• Excess data centers

• Lower free cash flow

• Higher depreciation expense

• Lower returns on capital

Even bulls expect AWS operating margins to fall by roughly 100–150 basis points in the near term because AI workloads are more expensive and infrastructure-heavy. 

This is the biggest near-term risk because the current stock price already assumes that the AI spending cycle works.

b. AWS Slowdown Risk

AWS is the most important part of Amazon.

Although AWS is only around 15–20% of revenue, it contributes the majority of Amazon’s operating profit.

If AWS growth slows materially, the entire Amazon investment thesis weakens.

The risks to AWS include:

• Slower cloud spending

• More competition

• Customers reducing usage

• Lower AI demand

• Pricing pressure

AWS has recently returned to faster growth because of AI, but it still faces strong competition from:

• Microsoft Corporation Azure

• Alphabet Inc. Google Cloud

If AWS growth slows from ~20–25% back toward ~10–15%, Amazon’s earnings growth could disappoint sharply.

This is particularly important because investors now value Amazon largely based on AWS rather than its retail business.

c. Competitive Risk in AI and Cloud

Amazon is spending aggressively because it fears losing leadership.

The problem is that Amazon is not alone.

Microsoft Corporation, Alphabet Inc., and others are also spending tens or hundreds of billions on AI infrastructure.

That means Amazon may not get the payoff investors expect because the industry could become:

• More competitive

• More commoditized

• Lower margin

If everyone builds AI infrastructure at the same time, then cloud providers may eventually compete on price.

Amazon’s custom chips, such as Trainium and Graviton, are promising and already generate more than US$20 billion in annualized revenue, but there is no guarantee they become dominant. 

If Amazon’s AI chips fail to compete with NVIDIA Corporation or other alternatives, Amazon may not achieve the margin expansion that bulls expect.

d. Margin Compression Risk

Amazon’s overall margins are still relatively thin outside AWS and advertising.

The retail business remains a lower-margin business that depends on:

• Scale

• Logistics efficiency

• Third-party seller fees

• Advertising

Risks to margins include:

• Higher labor costs

• More shipping costs

• Rising wages

• Higher fulfillment expenses

• Price competition

Amazon has improved retail margins dramatically over the last few years, but those improvements may not be permanent.

If consumers become weaker, or if Amazon has to compete more aggressively on price, margins could compress again.

This is especially important because the stock currently assumes that margins continue improving.

e. Regulatory / Antitrust Risk

This is one of Amazon’s biggest long-term risks.

Amazon faces increasing antitrust scrutiny in:

• The United States

• Europe

• The UK

• India

Regulators increasingly believe Amazon may have too much power in:

• E-commerce

• Cloud computing

• Advertising

• Third-party marketplaces

The biggest risks are that regulators could force Amazon to:

• Change how it treats third-party sellers

• Reduce marketplace fees

• Separate AWS from retail

• Restrict acquisitions

• Limit self-preferencing of Amazon products

The U.S. Federal Trade Commission monopoly case remains one of the biggest overhangs on the stock. 

Amazon can probably survive these issues, but regulation could permanently reduce growth and margins.

f. Third-Party Seller Risk

Much of Amazon’s retail profitability comes from third-party sellers.

Amazon increasingly earns money not by selling products directly, but by charging third-party merchants for:

• Marketplace access

• Fulfillment

• Advertising

• Logistics

The risk is that sellers are becoming increasingly dissatisfied because fees keep rising.

If Amazon pushes too hard:

• Sellers may leave

• More merchants may diversify to Shopify Inc., TikTok Shop, or direct-to-consumer channels

• Amazon’s marketplace growth could slow

This is a hidden but important risk because third-party sellers are one of Amazon’s most profitable segments.

g. Consumer and Recession Risk

Amazon is more resilient than most retailers, but it is still exposed to consumer spending.

In a recession:

• Consumers buy less discretionary merchandise

• Sellers spend less on advertising

• AWS customers may slow spending

• Businesses reduce cloud usage

Amazon would likely continue growing, but growth and margins could weaken significantly.

This is particularly important because the current stock valuation assumes continued strong growth.

h. Execution Risk

Amazon is simultaneously trying to:

• Lead AI

• Expand AWS

• Build custom chips

• Improve logistics

• Grow advertising

• Expand healthcare

• Build Project Kuiper satellite internet

That creates enormous execution risk.

Amazon is attempting too many large projects at once.

If management misjudges:

• AI demand

• Chip strategy

• Logistics investments

• Satellite spending

then Amazon could waste tens of billions of dollars.

Project Kuiper alone may require massive capital while competing against SpaceX and its Starlink network.

i. Valuation Risk

Amazon currently trades at a premium valuation because investors expect:

• Strong AWS growth

• AI leadership

• Margin expansion

• Higher free cash flow in the future

The problem is that Amazon’s free cash flow is currently depressed because of the huge spending cycle.

Amazon’s free cash flow fell to roughly US$11 billion despite very strong operating cash flow because capex has surged. 

That means investors are paying for future profits that have not arrived yet.

If Amazon’s growth slows or AI spending disappoints, the stock could fall even if the underlying business remains healthy.

A rerating from a high-growth multiple to a more mature-company multiple could reduce the stock by 20–30%.

8. Valuation

Current Valuation

As of April 2026:

• Share price: ~US$205–220

• Market capitalisation: ~US$2.2–2.4 trillion

• P/E: ~38–42x

• EV / EBITDA: ~20–22x

Amazon looks expensive on earnings because retail still depresses profits.

A better way to value Amazon is:

• AWS separately

• Advertising separately

• Retail separately

Approximate sum-of-the-parts:

• AWS: ~US$1.2–1.5 trillion

• Advertising: ~US$300–400 billion

• Retail and Prime: ~US$700–900 billion

Buy and Sell Zones

• Below US$190: attractive

• US$190–210: good buy

• US$210–230: fair value

• Above US$250: expensive

Bull Case

The stock could justify US$260–300 if:

• AWS growth stays above 20%

• Advertising continues growing 20%+

• Retail margins improve further

Bear Case

The stock could fall to US$160–180 if:

• AWS slows

• AI spending disappoints

• Retail margins weaken

9. Future Growth & Catalysts

Future growth drivers:

• AWS

• AI infrastructure

• Advertising

• Prime ecosystem

Potential catalysts:

• Faster AWS growth

• Better retail margins

• AI monetisation

• More advertising revenue

10. Position Sizing & Portfolio Fit

Amazon is suitable as:

• A core long-term holding

• A growth stock

• A way to gain exposure to cloud and AI

Potential position size:

• 5–12% of a diversified portfolio

11. Final Investment Decision

Three Reasons to Buy

1. AWS and advertising are extremely valuable businesses

2. Strong long-term growth potential

3. Amazon’s moat in logistics and Prime is very difficult to replicate

Three Reasons Not to Buy

1. Retail remains low margin

2. Heavy capex could limit free cash flow

3. AWS growth may slow