Amazon Is Burning Cash. The Market Loved It.

Amazon reported earnings last night and the stock is up 15.23% today. The reason why it's up so much is because of one thing the CEO Andy Jasse said on the earnings call. I still don't think it's fully registered yet. Amazon is going to spend $220 billion building AI data centers this year. They raised that guidance from $200 billion. And you can see in the quarter they just reported they spent $54.2 billion in capex up 68% year-over-year. And Andy Jasse said on the earnings call that even the $220 billion will not be enough to meet customer demand. They still will not have enough capacity to meet demand. Not this year, not next year. And here's the impact of this spending on their short-term free cash flow. This quarter, they're pouring negative $8.8 billion of free cash flow, down from positive 330 million in the comparable quarter last year. And in Q1 of 2026, they had negative $18 billion of free cash flow. So over the trailing 12 months, Amazon is cash flow negative at 111.63 billion. So one of the best businesses in the world is now free cash flow negative. Yet the market is up today on the news. They like what they heard. This should tell you something because over the past year and a half, the market has been hating on these hypers scale data centers. They have not been happy about the increases in capex. However, something is changing. Earlier this week, I made a video covering Meta Stock after it sold off following its earnings report. And in that scenario, the stock sold off because of the high capex that was being raised. But there's one key difference. Meta currently does not have a cloud business, not like Amazon Web Services, not like Microsoft Azure, not like Google Cloud. So, they don't have a massive backlog of booked revenue that they're investing in order to serve. In the earnings call, they announced that they have a backlog of $496 billion. Earlier this week, we saw Microsoft stock surge. I just made a video on that yesterday. And it's for the same exact reason as Amazon. Microsoft Azure is growing very fast, and they have a huge revenue backlog that they're investing in order to serve. So, these three companies are an interesting case study. In theory, they're all doing the exact same thing. They're spending to build out AI data centers. But Amazon and Microsoft, they actually have large existing cloud businesses with lots of external customers and relationships with the frontier models. Meta on the other hand, they are trying to crack into that space and are still iffy on whether or not they will actually rent out that external compute or use most of it internally. So Meta's earnings report and capex is put in the uncertain category while Amazon and Microsoft went up on the news. So today I'm going to do an updated stock analysis on Amazon following the latest earnings report. I'll break down why Amazon Web Services just hit its highest growth in 18 quarters. I'll dive into my thoughts on whether Amazon stock is still cheap after going up 15% on the day. And I'll explain why this massive 215% earnings per share beat is not exactly what it seems. There is a big caveat in this latest earnings per share number and it's not really reflective of the actual earning power of the business. With that said, let's roll the intro and get into today's stock analysis. The following reflects the opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. Continue at your own risk. >> My name is Zach. This is Dividend Data. You should leave a like and subscribe to the channel if you enjoy the video. Throughout, I'll be using the best stock research tool which is available at dividendata.com. We just released our next generation product and you should definitely head over and check it out. Link in the description and pin comment. You can also scan that QR code in the corner. So, I would suggest opening up the Amazon page and following along with me. Also, to celebrate the launch, we have a 50% off annual membership sale. This is the lowest price we ever offer and you can lock in that discounted price for life. And this whole tool, it's designed to help you find better investments. And the reason why that's great is the tool can then pay for itself many times over. All right, so let's jump right into it with Amazon stock. So over the past 5 years, Amazon stock is up 62.97%. That's growing at a 10.27% compound annual growth rate. So Amazon has actually been slightly trailing the S&P 500 in recent history, especially prior to it going up 15% today. But since going public in 1997, Amazon has been one of the best performing stocks in the market. Has a 277,000% total return. That's a 31.18% compound annual growth rate. And you can see today that Amazon is the fifth most valuable company in the world at a market cap of $2.92 trillion. But the company doesn't seem to be done growing yet. And in the words of their founder, Jeff Bezos, it's always day one at Amazon. And that's why the company invests like it. They have an extremely long-term mindset and they historically have been very willing to reinvest in their business and create entirely new product categories. Whether it's building out distribution centers so that they can have one day same shipping at Amazon, building out data centers across the country to serve cloud demand as cloud was growing. And now what may be their biggest investment yet is the infrastructure of AI data centers. Amazon has proven to be very willing to completely eliminate their free cash flow and even go negative for periods of time and we're about to enter another one of those periods. However, Amazon is a growing business and if you go and read a lot of Amazon's old shareholder letters written by Jeff Bezos, I actually have a book right here, Invent and Wander. It's a all the collected writings of Jeff Bezos. It's a pretty good book. He has always been willing to invest the company's money towards the long-term cash flow of the company. It's a long-term investing mindset and has worked out at Amazon. You can see their operating cash flow is currently at $161.4 billion. So even as the free cash flow at times goes negative and it's far below what their potential earnings could be at any time, they invest for the future and the overall business, the cash machine of Amazon is growing. Operating cash flow over the trailing 12 months is up 33% year-over-year. And in the latest quarter, they generated 45.39 billion of operating cash flow, up 39.5% year-over-year. This is why Amazon does not pay dividends. They reinvest everything into the business. They don't pay out to shareholders. So, let's dive into the latest earnings report and then we'll dive in specifically on Amazon Web Services since that's the big growth driver here for Amazon stock and I'll give my thoughts on the capex spend, potential return on investment. So, let's get right into it. So, the earnings per share looked like a crazy beat in the quarter. $5.75 versus $1.82 consensus among analysts. That was a 215% beat. And we can see this is the highest earnings per share ever for Amazon. And for the quarter, it's up 242% year-over-year. And it's a major outlier to the upside. But there's something you need to know about that number. It's not really reflective of the operations of Amazon. As I showed earlier, their operating cash flow was up but not that much. So in the quarter they had net income of $62.6 billion. However, the second quarter 2026 net income includes nonoperating pre-tax other income of $53.4 billion primarily from their investments in Enthropic. This is the AI lab, the maker of Claude, which is now the fastest growing tech startup ever. And if you watched the Google earnings report last week, they also are a large shareholder in Anthropic. So they had that same problem of an investment gain. Well, it's not really a problem. They're making money. It's an investment gain, but it's not reflective of the operational earnings of the business. Microsoft also had a stake in Thropic, although it's smaller than Amazon and smaller than Google. Microsoft is better known for their large stake in open AI, but Enthropic, it's actually a core leader of Amazon's fundamentals as well, and we'll get into that with the Amazon Web Services growth. So, here are the two big things from this latest earnings report and what's sending the stock up for Amazon. Amazon Web Services AWS is quote booming, growing 36.7% year-over-year in Q2, our fastest growth in 18 quarters. So that's the business segment that generates the most cash flow for Amazon and it's growing the fastest. Also, their AI and chips business eclipsed revenue run rates of more than $25 billion. So that includes Amazon Web Services AI business, which would be serving models and different AI infrastructure. This is growing tripledigit percentages year-over-year. The chips business also exceeded a $25 billion annual revenue run rate, growing tripledigit percentages year-over-year. Amazon has been designing their own chips for their data centers for a number of years now. that includes Tranium and Graviton. But because they're able to actually get this manufactured at a sizable scale, they're actually selling these chips to other companies as well. That includes startups and leading AI labs like Enthropic and OpenAI. And because there's such a comput shortage right now, pretty much all of these chip companies, they're selling out. Anyone who makes anything competent, Nvidia's already all sold out. So then we just move down the stack. We have Google's TPUs, those are basically all selling out. Amazon's Tranium, those are selling out. People buy whatever they can get their hands on. And you know what's crazy is that today I'm going to focus on the big story, which is Amazon Web Services and their AI related efforts, cuz that's what's driving the stock up. But the rest of Amazon still is a great business. The e-commerce side, it's not a huge profit generator for the company just in terms of e-commerce sales, but it gives them massive distribution. It's the whole reason they've been able to build this Amazon Prime membership, which is a fantastic subscription business. Amazon.com is the foundation of their digital advertising business, and it's one of the best digital ad businesses. Advertising had another strong quarter with 26% year-over-year growth. That's extremely high margin revenue. So, Amazon's doing well, but the big story is with Amazon Web Services, and it's all driven by a massive takeoff in AI right now. usage is skyrocketing. There is a huge compute shortage and in early 2026, it's really been the year of the coding agent and making AI extremely productive and useful. And you've seen Anthropics revenue grow by more than 7.5% this year, growing from 10 billion ARR to 74 billion ARR. You're seeing Open AI follow the same pathway. and they are following Anthropic down the enterprise route now and focusing more on coding agents because that's proven to be one of the more profitable use cases so far. And if you want to know more of my thoughts on AI more broadly, go watch my Microsoft stock analysis video I just did yesterday. I don't want to repeat myself fully in this segment. But the point is that Amazon's operating cash flow is going to continue to grow and they're investing this cafex to serve that demand. And yes, they have an investment in Enthropic and Enthropic has a lot of the revenue now and growth in order to invest it and secure compute contracts. But the reality of the situation also is it doesn't even really matter who the models are. Whether it's open models, whether it's enthropic, whether it's open AI, Amazon is just building the infrastructure. It's pretty much the same technology stack that can run all of these different models. So at the data center layer, it really only matters that there is demand, not who the demand is for. And this is why analysts are expecting continued earnings per share growth for Amazon in the coming years. They're expecting double digit around 20% annually, some years above, some years below. Then that would be $18.82 of earnings per share in the fiscal year 2030, which at today's stock price would be a P ratio of 14.5. But Amazon's not going to be done growing at that time. They're probably not going to trade at a 14p ratio. So we can do a simple price projection here and we'll take the current Ford P ratio which for 2026 at today's price is 30.7 and we'll put that into a price projection. Now what that would mean is that if they hit that 2030 earnings per share target and they trade at 30 times earnings then Amazon stock price would be implied at $577. That would imply 112% upside from here and 18.5% annual growth. In that case, Amazon stock may still look like a buy today. It may still be undervalued. I'll give you some other ways to look at it, though, because there are some metrics that look like red flags with Amazon. So, first we're going to take a look at this value graph tool. And basically, this takes the multiples for all of the key metrics over time, whether it's earnings per share, free cash flow, operating cash flow, revenue, and it uses the median multiple over the selected period as an implied fair value. And that fair value can go up and down depending on the actual fundamentals and performance of the business in that metric. And the problem we have right now with Amazon stock on this metric at surface level it looks like it's deep value still trading at a discount. But here's the problem. They just had that massive outlier in earnings per share to the upside because of the anthropic investment. So, I think personally we should take it out of that and I will adjust it to May 27th where Amazon's stock price was almost the same it is today, $271. And with a median multiple over those like 4.8 years, median earnings per share multiple is 50. So, that would imply the stock is still 35% below fair value. But really, a lot of that data got messed up because of this outlier earnings report they just had. So, let's look at the Ford earnings per share and Ford P ratios over time. This would basically be using the same numbers from this analyst estimates chart I had above. And you can see that the Ford P is 30.7. So, you see right there, 30.64. And over the past 5 years, the median multiple on forward earnings per share is 36.18. So, if we click that, that would imply a fair value of $320.87, which is 18.1% upside. But really, when we're analyzing Amazon, I would value it based on operating cash flow. And this is the most nononsense way to do it. So over the past 5 years, the median multiple for Amazon's price to operating cash flow is 20.78. The current multiple is 18.11. So you can see we're trading below fair value today, even after the price went up. You can also see in 2021 and 2022, the stock was overvalued based on operating cash flow. and 2021 and early 2022 proved to be a bad time to buy Amazon stock. The reality though is that when we zoom out, operating cash flow is growing at Amazon. And as long as that continues, the fair value and intrinsic value of the business will continue to grow. If the company trades at that 20.75-year median multiple, then the stock would still have 14.7% upside from here. And this is just in a rerating upwards. Think of it as like your margin of safety. The reality is is if the operating cash flow continues growing year after year, the fair value of Amazon is rising. So overall, I think Amazon is still a highquality business to own in 2026. I would not say it's overpriced. It's arguably fair value or trading at a discount to fair value even after going up 15.3%. So if you enjoyed the video, make sure to leave a like, comment, and subscribe to the channel. Check out dividenda.com so you can research your stocks just like I do. And with that said, thanks for watching and I'll see you in the next