Parkev Tatevosian, CFA on $AMZN (Nov 1, 2026)

Amazon announced a 12% increase in net sales, and more importantly, revenue from its most important AWS segment accelerated to 39% growth, up from 37% in the previous quarter.

But it wasn't all rosy, as advertising revenue slowed significantly to low double-digit percentages due to the difficulty of comparison resulting from the change in the timing of the "Prime Day" event.

Amazon shares recorded a much larger decline. It is recovering now, but it is still low after the company announced these quarterly financial results. Investors ask me what I will do with my Amazon shares, whether I am interested in buying more, whether I am thinking of selling my shares, whether I still think Amazon stock is a buying opportunity, and whether I still see it as one of the best stocks to buy right now.

The company's overall revenue grew by 12%, but AWS is the engine of those sales, and as an Amazon shareholder, this is the sector you want to see the most growth in.

It is the most profitable sector and enjoys the highest profit margins. Operating income jumped to 28 billion, up from 17.4 billion in the same quarter last year. These are the kinds of results you would want to see from a company that is spending $200 billion on capital expenditures this year alone.

You can see that the operating income for the AWS segment jumped to $17.8 billion, compared to $11.4 billion in the same quarter last year. This is the most profitable sector overall.

Operating cash flow increased by 29% to reach 168 billion. This is becoming increasingly important as Amazon spends more than $200 billion on capital expenditures.

She wants to see the company generate cash flows so that Amazon can use the internally generated funds to invest in artificial intelligence, without having to turn to investors for capital.

As an Amazon shareholder, I hope the company doesn't reach a level of spending that forces it to sell shares. This was what impressed me most from the management team, as they indicated that revenue growth rates would exceed 40% or reach at least 40% in the AWS sector for 2027 and 2028.

Great to hear, isn't it? Because this is the most profitable sector, and they have never before made such two-year projections for AWS services, but because they have a much clearer view of their revenue due to these customer contracts being signed, and customers waiting in line in case current customers cancel their contracts.

That is why the management team feels confident in making these projections for the next few years. Looking ahead to the fourth quarter, management expects revenue growth to accelerate to an average of 14%, up from 12% in the recently completed quarter.

They also expect the advertising revenue sector to recover by a high double-digit percentage, as time shifts change the outlook for that sector. Operating income is expected to reach an average of $31 billion.

This represents an increase from $25 billion in the same quarter last year, or approximately 25% growth in operating income.

For 2026, they are repeating their $220 billion spending plans, but during the conference call following this earnings announcement, the management team said they plan to spend much more in 2027.

Looking at the pace of spending in the quarter that just ended, they spent $75 billion. So, they are already on a pace that, if we calculate it annually, could amount to more than $300 billion, which I think they will spend in 2027.

So, given this huge amount of investment, I want to see the cash flow grow, and it is growing, isn't it? Net cash flow from operations jumped to $42.4 billion, up from $35 billion in the same quarter last year.

Looking at the past twelve months, which ended on September 30, their cash flow from operations rose to $168 billion, up from $131 billion in the same period of the previous year.

So, cash flow from operations jumped by $38 billion in 12 months.

These are the kinds of numbers you'd want to see from a company that invests these huge amounts of money. They have already spent enormous sums of money. In the quarter that just ended, purchases of real estate and equipment totaled $77 billion.

And again, if calculated annually, it would amount to more than 300 billion, which is more than double the $35 billion they spent at the same time last year.

So, you can see that the difference is negative, right? More money is being spent than is being generated, and they are financing the difference with debt so far. Another $48 billion in debt was added in the quarter that just ended.

Overall, over the past twelve months, they have borrowed $130 billion.

As a shareholder, I agree with that because Amazon can borrow at relatively low interest rates, around 5% as a cost of debt after tax, or maybe 6%. This is an attractive borrowing rate to finance an investment in a category that achieves operating profit margins of around 40%, and is fully booked for 2027 and most of 2028.

So, I agree to that. But I don't want to see them sell shares, especially since I believe their shares are undervalued. I don't want them to issue new shares at this time.

I saw exactly what I wanted to see from their AWS division, but not more than that by a single moment or an additional percentage increase, right? Exactly 39%, which is the level I felt would be a neutral rate of increase this quarter.

Any higher percentage would have pleased me. Any lower percentage would have disappointed me. At 39%, that's exactly what I was expecting in the middle of the range. In addition, the operating profit margin was 38.7% in the last completed quarter in the AWS segment.

Therefore, they are not only accelerating growth in this sector, but also increasing its operating profit margin compared to the same period last year.

This is evidence that this growth is driven solely by increased demand. This is not motivated by promotional offers, incentives, or discounts. These are highly profitable contracts, and extremely lucrative sales.

This is what I wanted to see. Once again, the slowdown in advertising was significant, dropping from 26% growth to 12%. Management attributed this to the different timing of "Prime Day" and indicated that it would rise in the next quarter to high double digits, such as 17, 18 or 19%.

Another figure that disappointed me was the number of employees they had. I was hoping to see more productivity improvements. I had hoped to see higher revenue per employee as they used automation, robotics and artificial intelligence to improve the productivity of their operations, but they added 43,000 workers compared to the previous quarter, a much higher number if compared to the same quarter last year.

Therefore, the number of employees is accelerating from a growth rate of 1% to 3% and now 4%. Now, this makes Meta's results look much better, doesn't it? Following these results, Amazon shares are now trading at a forward price-to-earnings ratio of 22.7, which I believe is significantly undervalued based on the company's growth, competitive advantages, and current prospects.

In fact, Wall Street analysts who follow Amazon have revised their long-term earnings per share growth estimates upward. They now expect earnings per share growth of 21.5% in the long term.

This is roughly equivalent to the forward earnings multiple, indicating that the price-to-earnings-to-growth (PEG) ratio is close to one.

I have also updated my discounted cash flow valuation model for Amazon with some key changes. I anticipate larger free cash flow losses in 2026 and 2027: -$34 billion in 2026 and -$20 billion in 2027.

However, I also expect stronger free cash flow starting in 2028.

I anticipate that cash outflows for data centers will peak in 2028 or possibly 2029, and I expect Amazon to begin reaping the benefits of those investments strongly starting in 2029.

Overall, I value the company at a fair value of $325 per share. The stock is trading at $239, so I believe the company is significantly undervalued.

just as I did with Amazon and Alphabet this week, and last week with Meta and Netflix.

So, to answer the question: What is my opinion of Amazon? What am I going to do with my shares? First and foremost, I want to emphasize my belief that Amazon is one of the top 10 stocks you can buy right now.

Therefore, I confirmed that today with a high level of conviction and a high level of confidence.

As for my position in Amazon stocks within my portfolio, I am interested in adding more after what I have seen from the company here; This has made me more optimistic about its long-term prospects, especially given Amazon Web Services' (AWS) projections for 2027 and 2028.

So, I will be looking to take opportunities to add more Amazon shares to my portfolio between now and the end of the year.