Amazon.com, Inc.

(NASDAQ Global Select)
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Slightly Bullish +15

Jim Cramer Says Amazon and Alphabet Are Cheap. Their Cash Flows Complicate the Case

AI-generated analysis

πŸ“ˆ Jim Cramer argues Amazon and Alphabet are cheap as investors favor other winners, with his charitable trust owning both stocks.

πŸ’° Amazon reported second-quarter AWS sales of $42.2 billion, up 37%, driving operating income to $16.6 billion from $10.2 billion.

πŸ“‰ Amazon's trailing twelve-month free cash flow turned negative at -$7.6 billion as property and equipment purchases reached $169 billion.

☁️ Alphabet's Google Cloud revenue rose 82% to $24.8 billion in the second quarter, supporting its operating bull case.

βš–οΈ Alphabet's quarterly capital expenditure of $44.9 billion exceeded its operating cash flow of $39.1 billion, complicating the valuation picture.

πŸ“Š Funds added exposure to Amazon and Alphabet before Jim Cramer's call, with Fisher Asset Management increasing positions in both.

⚠️ Analysts warn that treating Alphabet's $98 billion in unrealized equity-investment gains as ordinary earnings would exaggerate its cheapness.

πŸ” Amazon's short interest stood at 95.3 million shares (0.97% of float) with 2.3 days to cover as of August 14.

πŸš€ The investment thesis for both companies relies on future cash generation justifying current heavy infrastructure outlays.

Bullish Signals
  • Amazon reported second-quarter AWS sales of $42.2 billion, representing a 37% increase that supports the growth argument.
  • AWS operating income climbed significantly to $16.6 billion from $10.2 billion, indicating concrete support for Cramer's optimism.
  • Amazon's cloud expansion is producing substantial operating profits while advertising and retail provide additional revenue streams.
  • Fisher Asset Management increased its Amazon share position by approximately 2.3% to 34,978,432 shares.
Risk Factors
  • Amazon's trailing twelve-month free cash flow was negative $7.6 billion as net property-and-equipment purchases reached $169 billion.
  • The June-quarter filing shows that the company is burning significant cash to build the infrastructure required for its growth strategy.
  • A lower earnings multiple can flatter a stock when investment gains lift the denominator, potentially masking underlying cash flow constraints.
Full Analysis
Jim Cramer argues that Amazon (AMZN) and Alphabet (GOOGL) appear undervalued as investors favor other AI winners, noting his charitable trust holds both. The article highlights that while earnings multiples look attractive due to investment gains boosting the denominator, a critical distinction exists between reported earnings and actual free cash flow available after heavy infrastructure spending. Amazon reported strong second-quarter AWS sales of $42.2 billion, up 37%, with operating income climbing significantly to $16.6 billion from $10.2 billion. However, the company's June-quarter filing reveals a challenging cash picture where trailing twelve-month operating cash flow of $161.4 billion was nearly entirely consumed by $169 billion in property and equipment purchases, resulting in negative free cash flow of $7.6 billion. Alphabet presents a similar dynamic with Google Cloud revenue surging 82% to $24.8 billion and companywide operating income rising 30%. Despite this growth, Alphabet's quarterly capital expenditures of $44.9 billion exceeded its operating cash flow of $39.1 billion. The analysis warns that treating $98 billion in unrealized equity-investment gains as ordinary earnings would exaggerate the companies' apparent cheapness. Insider Monkey data shows funds increased exposure to both stocks before Jim Cramer's commentary, with Fisher Asset Management raising positions in Amazon and Alphabet Class A shares. While short interest for Amazon remains low at 0.97% of float, the investment thesis rests on future cash generation justifying current outlays rather than relying solely on low earnings multiples or rising cloud sales.