Amazon slides -11% after earnings amid CAPEX concerns — A buying opportunity?

Key Points

• AWS growth accelerated to 24% y/y for the quarter, marking the fastest pace in 13 quarters, alongside operating margins of 35%.
• Advertising continues to emerge as a key secondary growth driver, expanding 23% y/y.
• As such, we reiterate our “Buy” call on Amazon, while acknowledging that near-term volatility may persist.
• Amazon reported mixed earnings, with revenue surpassing estimates but earnings slightly missing expectations. This, combined with a higher 2026 CAPEX forecast, sent shares down -11% in after-hours trading at the time of writing.

Table 2: Next Quarter Guidance

Table 3: CAPEX Guidance 2026

Look beyond headlines – Why we remain positive on Amazon

1)       Robust cloud growth

Despite the sell-off, underlying cloud momentum remains strong: cloud growth accelerated to 24% y/y for the quarter (vs 21.4% estimates), marking the fastest pace in 13 quarters, alongside operating margins of 35%. This is further supported by a backlog that has surged to USD 244bn, with management noting that growth could have been even faster if supply constraints were less binding.

The discussion around chips was particularly telling. Trainium and Graviton together now represent a USD 10bn+ annual revenue run-rate, growing at triple-digit rates. Trainium2 is fully subscribed, Trainium3 is largely spoken for by mid-2026, and early demand is already forming for Trainium4 in 2027. These chips are strategically important due to (1) 30–40% better price-performance, and (2) their role as a structural margin lever.

On the other hand, elevated CAPEX appears aggressive, but it must be viewed relative to the cloud market opportunity. Management highlighted that demand is very strong, and that “Customers really want AWS for core and AI workloads, and we’re monetizing capacity as fast as we can install it.”

While the company’s cloud growth is slower than peers (Azure: 39%, Google Cloud: 48%), growth momentum has improved relative to recent quarters and adding significant absolute revenue growth. In fact, Amazon’s cloud revenue (USD 36 bil for last quarter) is the highest among peers (Microsoft Intelligent Cloud: USD 33bil, Google Cloud: USD 18bil).

2)       Advertising revenue catching up fast

Advertising continues to emerge as a key secondary growth driver, expanding 23% y/y (above estimates). Prime Video advertising is scaling globally, while AI-driven campaign tools are compressing advertiser workflows from weeks to hours.

Following the recent correction, valuation has become more reasonable relative to forward earnings growth assumptions. Amazon is currently trading at a forward P/E of 23.3x and a 2028 forward P/E of 18x, alongside double-digit earnings growth projections. Applying our fair P/E of 26x implies upside potential of approximately 40% over the next two years.

Figure 1: Amazon’s AWS and Ads growth is strengthening

Table 4: Valuations Table

Our View:

The market is increasingly treating this as an ROI gamble that either (a) turns into capital destruction, or (b) forces a valuation regime shift where these companies trade more like infrastructure operators than traditional “tech”, as spending profiles begin to resemble an arms race with uncertain payback.

Our view is that the market continues to underappreciate Amazon’s ecosystem and its ability to integrate AI across e-commerce, advertising, logistics, and its investment in Anthropic, as well as the trajectory of the advertising business towards a USD 100bn+ revenue stream, and the long-duration compounding potential of AWS.

While the question of whether this CAPEX wave proves visionary or misguided remains unresolved, one thing is clear: Amazon continues executing against strong demand signals across AWS and advertising.

As such, we reiterate our “Buy” call on Amazon, while acknowledging that near-term volatility may persist.

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.