Amazon Stock Analysis: Buy or Sell? (My Final Verdict) | AMZN Stock Deep Dive Part 5

SUMMARY

Parkev Tatevosian, CFA, provides a comprehensive analysis of Amazon's latest financial results, highlighting robust revenue growth, improved profit margins, and continued investments in AI and technology. Despite a 15% increase in share price and higher capital expenditures, he maintains Amazon as a top buy due to its strong fundamentals and perceived undervaluation.

MAIN POINTS

• Amazon is developing its own frontier AI model to control costs and offer competitive pricing to customers. [0:00]
• Amazon announced a $20 billion increase in 2026 capital expenditures due to higher component costs without gaining additional computing power. [1:01]
• Amazon's trailing 12-month revenue reached $775 billion, surpassing Walmart and achieving a fivefold increase since 2017. [2:00]
• Operating profit margins have reached record levels, and investments in AI and robotics have reversed declining revenue per employee trends. [4:02]
• Amazon's forward price-to-earnings ratio is 27.4, and discounted cash flow estimates were adjusted for higher costs and stronger AWS performance. [6:00]
• Amazon is reaffirmed as one of the top 12 stocks to buy, with high conviction and personal portfolio inclusion. [8:02]

DETAILED ANALYSIS

Amazon is actively pursuing the development of its own frontier artificial intelligence model, primarily to manage costs and provide its customers with competitively priced solutions. This strategic move is intended to ensure Amazon retains pricing power and does not become overly reliant on external AI providers. In its latest quarterly results, Amazon reported excellent overall performance but noted a significant increase in capital expenditures for 2026, now projected at $220 billion, up $20 billion from previous estimates.

This increase is attributed to higher component costs rather than expanded computing capacity, reflecting broader industry trends of rising input prices.

The company continues to demonstrate exceptional long-term growth, with trailing 12-month revenue reaching $775 billion, a fivefold increase from approximately $150 billion in 2017. This growth has allowed Amazon to surpass Walmart as the largest company by revenue, and it is expected to maintain a higher growth trajectory. Importantly, Amazon has achieved this expansion without sacrificing profitability.

Operating profit margins have climbed to a record 12.68%, nearly five times higher than in 2017, indicating strong operational efficiency alongside revenue gains.

Recent investments in artificial intelligence, robotics, and logistics technology have reversed a previous decline in revenue per employee, signaling improved productivity and cost efficiency. Management has indicated that further opportunities remain to enhance productivity and lower costs, particularly through continued technological advancements in its fulfillment operations. From a valuation perspective, Amazon's forward price-to-earnings ratio stands at 27.4, aligning with its historical average.

Adjustments to discounted cash flow models reflect both the near-term impact of higher capital expenditures and improved long-term cash flow expectations, especially from the AWS segment. Despite a recent 15% increase in share price, Amazon is assessed as undervalued, with an intrinsic value estimate of $312 per share versus the current market price of $271. The stock remains highly ranked among top investment opportunities, supported by a strong track record and ongoing innovation.

LINKS

• YouTube channel membership for exclusive perks and early access.
• Special offer for The Motley Fool Stock Advisor.
• Parkev Tatevosian's book on a six-step investing framework.
• Fiscal.ai investment research platform with a viewer discount.
• Webull investing platform sign-up with bonus shares.
• Monthly newsletter subscription on Substack.

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