Gaetano
Thematic Investor, Photonics & Physical AI Research
AI agents could drive Amazon's AWS compute and storage usage, lifting its operating profit. Inference already accounts for well over half of AWS AI revenue. With AWS at about $171.8B in 2026 revenue, two years of 40% growth and a 37.5% operating margin would yield roughly $126B in 2028 operating income; Jassy expects growth above 40% in both years. Cash capex hit $75.9B in Q3, trailing free cash flow was negative $42.4B, and management expects more spending in 2027. x.comÂ
AWS is adding substantial operating profit alongside revenue, challenging the case that Amazon's AI buildout lacks earnings power. About $6.3B of incremental profit on $13B of revenue implies nearly 49% incremental margins; inference and Trainium could improve economics. But depreciation lags, AI margins remain lower and $220B planned cash CapEx leaves returns uncertain. If profit and cash flow catch up, the selloff may underestimate long-term earning power; otherwise the discount is deserved. … Show more
Amazon's record AI spending looks backed by AWS demand, despite pressure on near-term profit. AWS grew 39% to $46bn, and CEO Andy Jassy projects growth above 40% in both 2027 and 2028. Quarterly capex reached $77.3bn, almost $20bn above expectations; the Q4 profit guide missed and retail ads softened. AWS acceleration makes the drop worth buying. Overweight; $370 target. x.com x.comÂ
Amazon's negative free cash flow and far-off AWS guidance add to its investment risk. Free cash flow is -$42 billion. True_yes_man describes Jassy extrapolating fourth-quarter AWS revenue at 40% growth for five years. That guide cannot be taken seriously; it resembles the Tesla and Nvidia playbook of projecting years ahead to support the market into the midterms, then recalibrating later. x.com x.comÂ
AWS's high operating-income contribution makes its projected growth a path to a much larger Amazon valuation. AWS produced $161B in trailing revenue and 63.3% of Amazon's Q3 operating income on 22.8% of revenue. Andy Jassy expects over 40% growth in 2027 and 2028 and $1T annual revenue within five to ten years; at that scale, AWS alone could justify $10T, before Amazon's other businesses. Amazon could easily quadruple over the next few years. x.comÂ
AWS's rapid growth in a huge business makes the long-term outlook decisively bullish for Amazon and the AI ecosystem. AWS revenue grew 39.3% year over year in September 2026; management guides for growth above 40% in 2027 and 2028. Amazon is always very conservative with guidance, making that AI outlook doubly bullish. x.com x.com x.comÂ
Amazon's hundreds of billions in AWS GPU spending are generating billions in additional sales without the operating-margin payoff expected from that investment, worsening its credit risk. The attached AWS chart shows quarterly revenue rising from $23.1 billion in Q3 2023 to $42.2 billion in Q2 2026, alongside operating income rising from $7 billion to $16.6 billion; the concern is the return on the GPU spending. x.comÂ
Amazon's AI investments are becoming a stronger long-term value driver as AWS combines 39% growth with a 39% GAAP operating margin, while custom silicon adds a competitive advantage. Improving commerce margins and management's rising confidence in AI-investment returns increase confidence in the 12-month-plus outlook for Amazon shares. x.comÂ
Amazon's faster AWS growth and broader profit support its investment case, but returns on infrastructure spending remain uncertain. AWS supplied about 60% of the $10.7B rise in operating income and North American retail about 37%. Trailing net capex of $210.7B exceeded $168.3B of operating cash flow. Much of the spend is on chips and servers with lives well under a decade; the test is how quickly capacity becomes AWS revenue. x.com x.com x.comÂ
Amazon ads may be structurally disadvantaged by capped ad inventory and AI's limited impact at the bottom of the funnel. Q2-Q3 incremental revenue versus Google fell to 33.4% from 41.8% a year ago; three quarters are a small sample and Q4 may look better. Management's reasonable explanations for soft Q3 ads came only now. Google Cloud revenue hit 66.8% of AWS's, up from 58.6% in Q2, despite AWS expecting >40% growth in 2027-28; TPU system sales complicate the comparison. x.com x.comÂ
AWS growth and backlog provide Amazon strong revenue visibility despite near-term free-cash-flow pressure. AWS revenue growth accelerated to 39.3%, backlog reached $578B with triple-digit year-over-year growth, and Amazon management expects growth above 40% in 2027 and 2028. TTM free cash flow fell to negative $42.4B while 2026 cash CapEx remained $220B, primarily for AI infrastructure. x.comÂ
