$AMZN · Ale's World of Stocks · 2026-10-31

But just as importantly, Amazon just announced its earnings, and the stock took a sharp drop due to headlines about missing expectations and burning through $42 billion of negative free cash flow , all while accumulating massive debt to build more AI data centers.

Amazon is one of my biggest investments, and has been for a long time. I am not here to downplay these headlines or issues , or to say that spending $220 billion in capital expenditures this year alone is not a huge amount that you should be aware of, and perhaps even concerned about.

But once you get past some of the scary headlines, I actually think what Amazon is trying to do here is pretty clear, and it’s something that Wall Street doesn’t seem to understand, or at least is missing the long-term picture in my opinion.

When I look at some of the short-term catalysts and of course some long- term ones that are on the horizon, I can't help but choose once again to pick up stocks when they're low while others are running away.

Looking at the stock chart here, we can see that the stock has fallen by a double digit this week. Note that I am recording this after profits have seen a significant decline here.

Historically, Amazon has always been one of the best-performing companies in the market. It rarely drops.

But with such a large decline, we are talking about wiping out almost a quarter of its total value from the peak, and we are also looking at a near-flat performance over the past five years.

In fact, I would argue that as of today, Amazon is probably the most undervalued of the "Big Seven" and other trillion-dollar companies, when you take into account how dominant Amazon is and all that it has planned for the future.

To conclude with the point about price when looking at valuation, remember that for decades it was perfectly normal for Amazon to trade at 50, 60 or even 150 times earnings, with a forward price-to-earnings ratio average for the last five years of 158.

But today, thanks to this decline and the suppression of the stock price that has continued in recent years, we are now talking about a price-to-earnings ratio that is 82% lower than its average over the last five years.

And with a price-to-earnings-to-growth (PEG) ratio that is now cheaper than the sector average as well.

Although Amazon, as you know, still leads by a wide margin in market share in many high-value markets, such as e-commerce and cloud computing, as well as having a growing presence in many other areas that it may not fully dominate yet, but is very likely to do so in the future.

Now, why would the stock be offered at such a discount in the first place? Well , much of this price suppression, which was happening even before the report, comes from the massive spending on artificial intelligence, and all the overall concerns surrounding inflation and interest rates that are weighing on consumers and businesses, which of course will hurt a giant company like this.

Their entire business, literally, focuses on selling e-commerce products to consumers and facilitating artificial intelligence and cloud computing services for businesses worldwide.

Well, all of this was compounded by this week's earnings report , in which Amazon apparently made sales of $201.9 billion, which is a huge amount, but was slightly less than the $202.3 billion that analysts had predicted.

Now, although revenues are still high with a double-digit year-over-year growth rate of 12%, which is insane growth for this size, again, more than $200 billion in one quarter to grow at that rate is insane.

However, despite that, greedy analysts and investors wanted more, and Amazon did not live up to those slightly higher expectations. Most importantly, net income was $20.7 billion, or $1.89 per share, which is actually a slight decrease from $1.95 per share last year and also fell short of analysts' expectations of $1.96.

Meanwhile, online store sales grew by only 2% year-on-year. Returning to those overall concerns we've been talking about, consumers may be unwilling to spend as much, or at least not much more, than they used to because of these economic conditions that are really weighing them down. So this is the essence of the concerns.

Moreover, advertising revenue, although growing by 11% year-on-year to reach $19.6 billion, remained below Wall Street expectations of $ 20.8 billion. Now, if you only read these superficial figures, you might again think that Amazon’s online shopping and advertising activities are slowing down and that its profits are declining.

This, again, is the big negative narrative that you will infer from reading those superficial numbers and headlines.

Okay, here's the thing. Neither of these things is actually true. First, the only reason retail and advertising growth appeared weak in the third quarter is that Amazon held its major shopping event, "Prime Day," in the third quarter of last year.

This year, Amazon deliberately moved "Prime Day" earlier in the second quarter in several countries so as not to clash with the FIFA World Cup in July.

This is extremely important, because when the date of "Prime Day" is changed in this way, two things happen. First, retail sales change with it, but also all the advertising dollars that sellers would normally spend to promote their products during "Prime Day" have moved with it as well.

Therefore, management confirmed that moving "Prime Day" out of this quarter resulted in a reduction of a full four percentage points from overall sales growth, and also temporarily slowed their advertising growth.

But now, with the fourth quarter entering during the holiday shopping season, they actually expect their advertising growth to rebound to high levels, with total fourth-quarter sales expected to reach a maximum of 247 billion, representing growth of about 16% year-over-year, and a clear acceleration compared to the previous quarter as well.

Second, when it comes to earnings per share, the only reason for the decline in profits is that Amazon recorded a one-off book gain of $9.5 billion in the third quarter of last year from its investment in the artificial intelligence company Anthropic.

That was last year. But excluding that, Amazon's actual operating income from running its day-to-day business actually rose 61% year-over-year, jumping from $17.4 billion last year to $ 28.1 billion this quarter.

They also expect to reach more than 33 billion in the next quarter.

We also saw operating profits for the North American sector rise by 82%. International operations rose by 32%, and Amazon's overall operating margins also increased by about four percentage points, reaching what I believe is its highest level ever in the company's entire history.

In other words, no, Amazon is definitely not in decline in any way, shape, or form, and no matter what others try to convince you of, that is not the case for Amazon. Essentially, their core business remains stronger than ever.

And again, you won't really realize that just by looking at the historically cheap price of the stock, which, in my opinion, has been heavily restrained. I mean, let's take Amazon Web Services as an example, their crown jewel.

AWS revenue growth accelerated to 39%, up from 37% in the second quarter, to reach $46 billion in the quarter, which not only exceeded expectations but also recorded its fastest growth rate in nearly 5 years.

This is the fastest. This is extremely important. How can the stock price be so low and suppressed when the company is actually achieving some of its best figures ever? On the net profit side, operating profit jumped 55 % year-over-year to $17.8 billion , meaning AWS now brings in about 23% of Amazon’s total sales and 63% of the company’s total operating profit as a whole.

Therefore, seeing this unit continue to grow in this way is a great sign, and a very positive signal for any Amazon stock investor. This is exactly what you want to see.

Now, let's address the big number that scared investors, which is the burning of cash and debt. This is the aspect where I place a lot of my concern regarding Amazon. Over the past twelve months, Amazon has recorded negative free cash flow of more than $42 billion.

This is a decrease from a positive inflow of $14.8 billion a year ago. There is clearly a huge shift going on here.

This also happened while more than $48 billion of new debt was raised in this quarter alone. Those are very large numbers. Scary, isn't it? Extremely scary. Because Amazon spent $77 billion on property and equipment in the third quarter, more than double the $35 billion it spent last year, and is spending a total of $220 billion this year to build and expand its AI data centers , pessimists fear that if some of its clients, such as Anthropic or OpenAI, fail to pay their bills over the next decade, then yes, Amazon could find itself in serious trouble.

That's the prevailing logic there . But, here's the truth, guys. So, first of all , Amazon's business is not losing money in any way . Its operating cash flows , which is the actual cash flow that flows in before any new facilities are built, actually jumped 29% year-on-year to a record high of more than $168 billion .

The only reason their free cash flow is currently negative, which accounts for that spending, is that they chose to take the entire $168 billion of operating cash flow, keeping $114 billion in cash and securities, and decided to inject $210 billion to purchase land, servers, and chips to meet customer demand that was already completely sold out.

In other words, you have a very profitable company, you have cash flow, you have the means to invest in your business, and you have decided to do so. They decided to use all that cash and bet everything on this.

Now, you could say that future demand may not be as strong as they think, or that some companies will be unable to pay when the time comes to pay. But, if you're a company that generates $168 billion in operating cash flow, I honestly wouldn't mind spending that cash right now on what I consider probably the most revolutionary technology of our entire lives.

I'm not saying I like it. Honestly, I'm not even a fan of his. But in reality, when you look at artificial intelligence, I put it on the same level as the internet in terms of the number of people and businesses around the world that I think will end up using these things on a daily basis.

I think it's integrated into everything. I think that's simply the reality of the situation . Therefore, I prefer that this company be an absolute leader in that market while it still has the opportunity to take advantage of its dominance and its huge cash flows, so that it can spend that and invest it.

Now, if they were struggling, if they weren't generating amazing cash flows , if all of this was being financed entirely by debts they had no hope of ever repaying, then yes , I would have sold my shares too.

I would have done that. I would have been in the pessimistic camp, on the side of the downward expectations. But this is not the case in reality. I really don't feel that this is reality.

In fact, analysts expect free cash flow to return to positive territory by 2028 at more than $42 billion, which I think will set a new record for them. This is extremely important.

I repeat, I am not saying that things cannot get worse from here, or that there will not be more obstacles along the way. But I would say that for me personally, whenever I see such a large drop in Amazon's stock, it is always an automatic buying opportunity, because the price is so cheap, the business is booming, and it is more dominant than ever.

The holiday shopping season is just around the corner, and this company remains one of the most ambitious and aggressive in the world, actually ready to reinvest in its business for the future.

I mean, just look at what they're doing in the field of artificial intelligence. Their Amazon Bedrock service is experiencing tremendous growth, helping companies hire top AI models, and we've seen Fortune 500 companies' spending jump nearly 7 times year-over-year, with usage volume also increasing 17 times .

They have entered into new cloud deals with Meta, Nvidia, OpenAI, and Oracle. They are acquiring the data analytics startup DuckLabs. They are now making their own Trainium and Graviton processors, which are claimed to operate at a lower cost and much greater efficiency than generic graphics processing units , such as those produced by Nvidia.

Incidentally, this custom chip business is also growing at triple-digit percentages year-on-year , and has already reached an annual revenue rate of $25 billion. This is backed by $225 billion in confirmed customer commitments.

I mean, it's crazy how this company enters new markets whenever it wants, and quickly becomes one of the biggest players in them. It is a tireless and relentless company .

I don't have time to cover everything they're doing , such as robots, amazing delivery speeds , their giant logistics network, Amazon Pharmacy's 60% growth which I think will be huge in the future, record-breaking NFL and NBA viewership on Prime Video , and Zoox self-driving taxis that currently offer paid rides in about 12 cities. It will expand rapidly.

And Amazon Leo satellite internet, which will be launched later this year in partnership with AT&T. I mean, the list goes on and on about all the things Amazon does and how innovative they are.

So , yes, I would invest in this almost unstoppable empire at this valuation . And I would be happy to buy any price lower than this as well. If the stock continues to fall or any weakness persists, I will buy the stock any day of the week.

This stock remains one of my largest and most optimistic holdings in my very long-term investment portfolio .