Amazon’s valuation has become a topic of discussion as the stock lags other major AI names. At a trailing price-to-earnings ratio of about 20, the stock is trading at its lowest valuation since going public, Yahoo Finance reported, citing TrendSpider.
Can the stock reward long-term investors?
Amazon (NASDAQ:AMZN) can keep growing because Amazon Web Services is becoming a more complete business. AWS now makes its own chips and controls the data centers, the networking and the software around them. That lets it offer better prices and keep more of the profit, and it reduces its need to buy chips from outside suppliers. AI labs such as Anthropic and OpenAI have committed to using Amazon’s chips. AWS revenue growth sped up to 36.7% in the second quarter, its fastest in years, and a large backlog of signed cloud work gives Amazon a clear view of demand for the next few years.
Billionaire Stanley Druckenmiller’s Duquesne Family Office increased its Amazon position by 1,083% in the second quarter, and Amazon is one of the stocks on our list of 10 Best AI Stocks to Buy According to Billionaire Stanley Druckenmiller. Bill Ackman’s Pershing Square Holdings also discussed Amazon in its second-quarter letter. Read how AI demand is speeding up AWS revenue. The spending on data centers answers demand that already exists.
The shopping business adds a second source of growth. Faster delivery brings more orders, more orders make each delivery cheaper, and more shoppers give Amazon more chances to sell ads and Prime memberships. Advertising grew 26% in the second quarter. The North American retail margin reached 7.9%, even with Amazon spending to speed up delivery. Operating income rose 43% in the second quarter while revenue grew 20%, which shows profit growing faster than sales.
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Bear case
Amazon is spending a huge amount on AI capacity, and cash flow shows the strain. Most of the cash the business produced in 2025 went straight into spending, and the plan for 2026 is larger. L1 Capital expects AWS spending to push Amazon’s free cash flow negative, but it says the market is too focused on near-term cash flow. Here is why the fund stays optimistic.
AI chips and servers age quickly, and Amazon has already shortened the useful life of some of its equipment from six years to five. If Amazon must replace equipment often even after this buildup ends, the cash flow recovery investors expect could be much weaker than the profit growth suggests.
AWS growth also has to stay high to justify the spending. If growth slows while spending stays high, the economics get worse quickly. AWS could also grow in sales and still lose share to Microsoft or Google. Boykin Curry’s Eagle Capital Management covered Amazon in its second-quarter letter. Read how it weighs bigger AWS growth against rising competition.
Valuation
Amazon trades at a forward P/E of 30.3, against about 19 for the S&P 500. That is a high price, and the growth covers part of it. Analysts expect earnings per share to rise 15.9% in 2026 and 26.1% in 2027, while the market’s earnings grow about 10% a year. Revenue is expected to rise 15.5% in 2026 and 14.4% in 2027. The core business is growing faster than sales. Operating income rose 43% in the second quarter, and Amazon Web Services, the cloud unit, grew 37%. Reported profit looks much bigger because it included a large one-time gain on Amazon’s stake in Anthropic, so the growth rates above are the ones to use. On 2027 earnings of $10.51 per share, the P/E is about 24.
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