Rating: BUY | 12-M Price Target: $330 | Upside: +32% | Current Price: $250

Rating and Overall View

We believe Amazon will continue to grow so are giving it a buy rating with a price target of $330 over the next 12 months. Amazon recently recorded its first $200bn revenue quarter. Its cloud division is growing at the highest rate it has in several years. However Amazon is spending a large amount of money on AI compute which is impacting cash flow currently. We think the upside to revenue growth outweighs the short term cash flow negative and therefore give a slightly lower price target than consensus.

What Amazon Does

There are 3 parts to Amazon. North America and international are the online selling arm. Whether from amazon or 3rd parties on there platform. This produces large amounts of revenue but with low single digit profit margins due to fulfilment costs.

Amazon web services (AWS) is their cloud computing division. They rent out servers and data storage space to companies and allow them to run their AI on there platform. This is a smaller portion of Amazons revenue, only around a fifth, but generates the bulk of there profits.

They also generate revenue from ads. Where brands can pay to be shown at the top of results when searching for their product.

Amazon also has there own AI division. They produce their own compute chips (Trainium) rather than buying them from Nvidia. Have a platform called Bedrock that allows users to use various LLMs. Including Claude by Anthropic. A company Amazon has invested billions into. They have an AI shopping assistant called Rufus and an AI assistant called Alexa+.

Latest Results

Amazon recently posted a revenue figure of $200.6bn. An increase of 20% y/y. AWS increased at nearly 37% y/y. Which is the highest growth rate in roughly 4 years. Their operating margin for AWS has continued to rise as well from around 33% to just under 40% in the latest quarter. Ads grew by 26% y/y.

It should be noted that Amazons profit figure for the last quarter was higher than usual. As their stake in Anthropic rose in value causing a one off gain of over $50bn. Without this their operating profit growth rate would be much lower. So when looking at P/E ratios etc make sure you take this into account.

Amazon revenue has increased each year from 2021 to 2025. With profit margins rising as well from very low single digits to over 10%.

What will drive growth

We believe the biggest driver of Amazon will be AWS. With over $225bn of committed sales for there Trainium chip. If the chip performs how Amazon says it does then this will increase there profit margins further. By reducing the cost of running AI.

Ads should also see significant growth as it's a high margin business and Amazon can provide companies with valuable information on there customers.

As mentioned earlier Amazon and Anthropic have partnered. Anthropic will be paying over $100bn to use AWS over the next 10 years. So not only will Amazon have a high revenue customer but they will also have a stake in one of the best AI companies.

There will be competition from Microsoft with Azure and Google Cloud. Along with Walmart, Shein and Temu in the e-commerce space. And Google, Meta and TikTok in advertising.

Cash Flow

Amazon does not pay dividends or buy back many shares. They will invest most of there cash flow into purchasing property plant and equipment (mainly data centres). This has risen significantly over the past year from $32bn to over $54bn. They are expected to spend around $200bn on PPE in 2026. Mainly to build out there AI infrastructure.

Free cash flow has decreased as a result. Falling from $33bn to under $8bn over the last year. Amazon has borrowed a significant amount of money as well. But their debt is still reasonable compared to other companies.

How It Compares to Competitors

When comparing Amazon to other mega caps such as MSFT GOOGL META AAPL and NVDA. Amazon has the lowest profit margins and returns on invested capital. Due to there lower margin ecommerce division. They will appear cheap on a P/E basis but as stated before their current profit figure is skewed due to the Anthropic stake.

Positives and Negatives

Positives are there distribution network. Customers who use their AWS service are unlikely to move away and they have a loyal customer base through there prime membership. Negatives include recent government lawsuit's against them. Including one from August 2026. Accusing them of overpricing their ad space. Also with other companies releasing AI shopping assistants it may impact how customers find there products.

Conclusion

We think Amazon will be a great company to hold for the next few years. Whether your an individual or institutional investor. As a core holding it's hard to go wrong. We have a price target of $330 with our bull case at around $400 and bear case at $250. We think it will take at least a year or two for cash flow to improve as they spend so heavily on building out there infrastructure. So we would advise keeping position sizes moderate for the time being.