AMZN is undervalued; fair value $292 vs price $251 implies >16% upside due to AWS growth outweighing capex headwinds.

These are Amazon, Netflix, Uber, Nvidia, Pinterest, Meta, Visa, Adobe , and McDonald's. Let me explain why I believe these stocks represent excellent value at the moment.

Let's start with Amazon. I calculate the fair value of the company using the discounted cash flow valuation model that you see on the screen. This model estimates the amount of cash flow that I believe the company will generate from now until the long term.

Because the value of money in the future is less than what we have in our pockets today, I discount those future values using the weighted average cost of capital that I share with you on the left side.

All of this comes together to arrive at an estimate of the fair value of Amazon stock at $292 per share, which is higher than the current market price of $251 per share. This means I'm calculating a potential rise of more than 16% for Amazon stock.

Now, one of the headwinds Amazon is currently facing is the company's escalating capital expenditures. Amazon predicted to investors that it would spend more than $200 billion , and possibly as much as $225 billion in 2026, to build its artificial intelligence infrastructure.

This results in negative free cash flow for 2026 and beyond, and as you can see in my valuation model , I expect Amazon's free cash flow to be negative $39 billion that year. And again the following year, negative $6 billion, before returning positive in 2028 and growing significantly from there.

One of the biggest positive factors facing Amazon is the strong growth in the Amazon Cloud Services (AWS) sector, which accelerated in the last quarter ending to reach 37% compared to 28% in the previous quarter.

The company's operating profit margins also improve as revenues increase from this more profitable sector. It all comes down to balancing risk versus reward, which I find very attractive to investors.

In fact , it's so attractive that I bought Amazon shares for my personal investment portfolio.