Amazon.com, Inc.

(NASDAQ Global Select)
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Somewhat Bullish +45

Is Amazon (AMZN) a Good AI Stock to Buy for Long-Term Investors?

AI infrastructure Cloud expansion Company update AI-generated analysis

πŸ“‰ Amazon trades at a trailing P/E of 20, its lowest since IPO, but carries a forward P/E of 30.3 versus an S&P 500 average of 19.

☁️ AWS revenue growth accelerated to 36.7% in the second quarter, marking the fastest pace in years for the cloud division.

πŸ’» Amazon manufactures its own AI chips and controls data center infrastructure, reducing reliance on external suppliers like Nvidia.

🀝 Major AI labs including Anthropic and OpenAI have committed to using Amazon's custom chips for their operations.

πŸ“ˆ North American retail margins reached 7.9% in the second quarter despite heavy investments in faster delivery speeds.

πŸ“’ Advertising revenue grew 26% in the second quarter, adding a high-margin growth vector to the core business.

πŸ’° Operating income surged 43% in the second quarter while total revenue increased by 20%, indicating strong profitability.

πŸ’Έ L1 Capital expects Amazon's free cash flow to turn negative in 2026 due to massive spending on AI capacity expansion.

⚠️ Amazon has shortened the useful life of its data center equipment from six years to five years to combat rapid hardware obsolescence.

πŸ“‰ Analysts warn that AWS growth must remain high to justify current spending, or economics could deteriorate quickly.

πŸ† Duquesne Family Office increased its Amazon position by 1,083% in the second quarter, signaling strong institutional confidence.

βš”οΈ Amazon faces competition from Microsoft and Google for cloud market share despite its vertical integration strategy.

Bullish Signals
  • AWS revenue growth accelerated to 36.7% in the second quarter, the fastest pace in years, driven by a large backlog of signed cloud work.
  • The company manufactures its own AI chips and controls data center infrastructure, allowing it to offer better prices and retain more profit while reducing supplier dependency.
  • Major AI labs such as Anthropic and OpenAI have committed to using Amazon's custom chips, validating the strategic shift to in-house hardware.
  • North American retail margins reached 7.9% in the second quarter, demonstrating improved profitability even with heavy spending on delivery speed improvements.
  • Advertising revenue grew 26% in the second quarter, providing a high-margin growth stream that complements the core e-commerce business.
  • Operating income rose 43% in the second quarter while revenue grew 20%, showing that profit is growing faster than sales.
  • Analysts project earnings per share to rise 15.9% in 2026 and 26.1% in 2027, supporting the current valuation multiple.
Risk Factors
  • Massive spending on AI capacity has strained cash flow, with L1 Capital expecting free cash flow to turn negative in 2026.
  • AI chips and servers age quickly, forcing Amazon to shorten equipment useful life from six years to five years, which could weaken future cash flow recovery.
  • If AWS growth slows while capital spending remains high, the company's economics could deteriorate rapidly.
  • There is a risk that AWS could grow in sales volume but still lose market share to competitors like Microsoft or Google.
  • The stock trades at a forward P/E of 30.3, which is significantly higher than the S&P 500 average of 19, presenting valuation risk if growth falters.
Full Analysis
Amazon (AMZN) is currently trading at a trailing P/E of approximately 20, its lowest valuation since going public, though the forward P/E stands at 30.3 compared to an S&P 500 average of 19. Despite the high price relative to the broader market, analysts project earnings per share growth of 15.9% in 2026 and 26.1% in 2027, with revenue expected to rise by 15.5% in 2026. Amazon Web Services (AWS) is driving significant growth, accelerating to 36.7% in the second quarter, its fastest pace in years. The unit has reduced its reliance on external suppliers by manufacturing its own chips and controlling data center infrastructure, a strategy that has attracted major AI labs like Anthropic and OpenAI. This vertical integration allows Amazon to offer competitive pricing while retaining more profit margins. The company's retail segment continues to strengthen profitability, with North American retail margins reaching 7.9% despite heavy spending on faster delivery speeds. Advertising revenue grew 26% in the second quarter, contributing to a 43% increase in operating income while overall revenue grew 20%. However, substantial capital expenditure on AI capacity has strained cash flow, with L1 Capital predicting free cash flow could turn negative in 2026. Investors face risks regarding the longevity of AWS growth and the rapid obsolescence of AI hardware, which Amazon has already addressed by shortening equipment useful life from six to five years. While hedge funds like Duquesne Family Office have significantly increased their positions, analysts warn that if AWS growth slows or market share erodes to competitors like Microsoft and Google, the current high valuation may not be justified.