- Company name
- Amazon
- Sector
- E-commerce & cloud computing
- About
- Amazon runs two main businesses. The first is online retail. Amazon sells products directly to customers, and it lets other sellers list products on its site for a fee. The second business is Amazon Web Services, or AWS. AWS rents cloud computing, storage, and AI infrastructure to other companies. AWS produces most of Amazon's profit.
- Thesis
- The market discounts Amazon mainly because of its record AI spending. Amazon plans to spend about $220 billion in 2026 on AI data centers and chips. This spending pushed free cash flow negative. Investors fear the spending will not earn a strong return quickly. They also worry that pending antitrust cases could force costly changes to two of Amazon's most profitable businesses, its ad auctions and its marketplace. For the gap to close, AWS operating margins must keep expanding. The large backlog of signed cloud contracts must also keep converting into revenue. AWS operating margin already reached 39.4% in Q2 2026, up from about 33% a year earlier. Its contract backlog jumped by $132 billion in one quarter, to $496 billion. This shows real demand already exists for the new capacity. A new FTC advertising lawsuit, filed in August 2026, adds to an existing FTC marketplace monopoly case set for trial in 2027. Neither case will resolve quickly. Amazon is expected to report Q3 2026 results on October 29, 2026. That report should show whether AWS margins and backlog conversion keep improving. If they do, and the antitrust cases do not force major business changes before their 2027 trial dates, the discount can close over the next four to six quarters.
- Risks
- Amazon's free cash flow turned negative in 2026 because of heavy AI capital spending. Full-year capital spending guidance is now about $220 billion. If AI demand grows slower than planned, this spending will not earn the expected return.
The FTC and 22 states sued Amazon in August 2026 over its advertising auction practices. Amazon also faces a separate FTC monopoly case against its marketplace, set for trial in 2027. A loss in either case could force changes to two of Amazon's most profitable businesses.
The FTC and 22 states sued Amazon in August 2026, alleging it overcharged advertisers more than $20 billion since 2019 by secretly overriding its stated second-price ad auctions. This is separate from the existing FTC marketplace monopoly case and adds legal risk to Amazon's advertising business specifically.
Amazon's AI capacity growth depends partly on a small number of large partners, including Anthropic, which Amazon has invested billions of dollars in. If a large partner's growth slows, or it shifts spending to another cloud provider, AWS's return on its new capacity would suffer.
- Balance sheet
- Amazon now borrows to pay for AI data centers, and large stakes in AI companies sit on its balance sheet. At June 30, 2026, it had $132.1 billion of unsecured senior notes at the parent. This is up from $68.8 billion face value of long-term debt at December 31, 2025. It also had $109.8 billion of operating and finance lease liabilities and $9.3 billion of financing obligations. Against this, it had $123.0 billion of cash and marketable securities. Free cash flow was negative $7.6 billion for the 12 months to June 30, 2026. Purchases of property and equipment of $169.0 billion, net of proceeds and incentives, used more than all of the $161.4 billion operating cash flow. Operating income of $51.3 billion in the first half of 2026 covered interest expense of $2.1 billion about 24 times. The $20.0 billion of revolving credit facilities and the $30.0 billion commercial paper programs were undrawn. The ratings are AA at S&P, AA- at Fitch and A1 at Moody's. In February 2026, Moody's moved its outlook back to stable because of higher capital spending. Amazon also holds $122.3 billion of private equity stakes, mostly Anthropic and OpenAI preferred stock. These stakes added large non-cash gains to profit. Anthropic can still ask Amazon to lend up to $15.0 billion under a financing facility. The debt is affordable. But while free cash flow stays negative, each new step of AI spending needs more borrowing until the new capacity earns revenue.
As of 2026-06-30.
- Checkpoints
- Oct 29, 2026 (estimate): Q3 2026 results: AWS margin and backlog conversion. Pending. Watch: AWS operating margin near or above the Q2 level of 39.4% and backlog that keeps turning into revenue pass; a margin drop or a stall in AWS growth fails.
Feb 2027 (estimate): Q4 2026 results and 2027 capital spending plan. Pending. Watch: Free cash flow that turns toward positive with steady AWS growth passes; a larger 2027 capex plan with still negative free cash flow fails.
Mar 29, 2027: FTC marketplace monopoly trial starts in Seattle. Pending. Watch: A settlement or trial progress with no forced change to the marketplace or fees passes; a ruling or settlement that forces large business changes fails.
- Recent events
- 2026-09-30: Amazon and Synopsys signed a multi-year deal worth more than $1 billion. Synopsys will supply chip design technology for Amazon's Trainium, Graviton and Nitro chips. Amazon pays a license fee plus royalties that grow with chip volume.
2026-09-01: Amazon continued cutting jobs in 2026, including corporate technology and fulfillment roles in Washington state, after eliminating about 16,000 corporate positions worldwide in January 2026 as part of its shift toward AI.
2026-08-31: The FTC and 22 states sued Amazon over its advertising auction practices. The lawsuit says Amazon hid surcharges that turned second-price auctions into first-price auctions.
2026-08-31: The FTC and 22 states sued Amazon in Seattle, saying it overcharged advertisers by more than $20 billion since 2019 by secretly overriding its second-price ad auctions with higher, undisclosed prices. Amazon denied wrongdoing and said its auctions lower advertiser costs.
2026-07-30: Amazon reported Q2 2026 results. Revenue was $200.6 billion, up 20% from last year. AWS revenue grew 37%, to $42.2 billion.