$AMZN · Joseph Carlson After Hours · 2026-11-02

while I was posting my video about Google's earnings and analyzing everything that happened, Amazon announced its earnings and they dropped by 7% at the same time.

Now, next on our list is Amazon. As for this stock, it is now my second largest investment position. It is at $182,000, with a profit of $57,000 .

As for Amazon, it went through an earnings report that was more like a rollercoaster ride. This is really funny, because immediately after Amazon announced its earnings, the stock price dropped significantly.

In fact, many investors were saying, "Oh my God, the stock is down 7%. What am I going to do? Google's stock just dropped and now Amazon, the market is crashing." But look at what happened during the rest of the week.

Over the past five days, Amazon's performance has remained stable. In fact, it has risen slightly.

So, you can see what happened here on the price chart. They announced their profits, and the stock fell by 7%. Then the following morning, the stock rose by 3 or 4% to recover part of the loss.

And then later this morning, it rose by another 3 or 4%. Now, it fluctuates between the green and red zones based on the week's performance. So, it has just dropped into the red zone by 0.06%.

But basically, if you had slept through the last four days, you wouldn't have noticed any difference in the Amazon price. It will be exactly the same. Therefore, all this emotional volatility with the stock falling and rising again is exactly what is called short-term noise.

This is the kind of thing you should ignore and not take into account when making your investments.

Now, when I look at Amazon specifically, I think it is one of the greatest companies in the world. I believe that Amazon is one of the most structurally strong companies in the world.

I was really impressed with the latest earnings report.

But right now, my price target or fair value assessment for Amazon is 350. That means that from today, I think there is potential for an upside of approximately 40% in this company.

It is one of the best stocks in the world. I think it has a very broad competitive advantage , and I like its growth. In fact, the growth was quite impressive. I don't understand why Amazon's stock has dropped so much.

The argument against the stock is very weak, and I believe the company's future is as bright as it has ever been. So, I set my Amazon target at 350. I think it's one of the best opportunities available today.

On the other hand, Amazon has great structural strength. Amazon Web Services ( AWS) is very large. And the logistics network is enormous. I think Amazon's story is a little clearer.

Now, with Amazon and Google both significantly undervalued, you might wonder why I wouldn't buy these companies today. The reason is that I already own large shares in these companies .

I am very optimistic about my investment positioning . I have approximately $200,000 or $150,000 or more in these companies. How much more do I need to possess to prove that I am optimistic about it?

Now, let's move on to Amazon's earnings report. The company announced its results last week, and the stock immediately fell by 7% after the report. Therefore, the stock is low in after-hours trading, and investors are very worried.

The stock then recovered by about half the next day. Then on the next trading day, which is today, the stock remained almost unchanged at its level before the report.

Amazon is still a company that I believe is undervalued, and I want to review some of its financial data. So, we'll take a look at what was happening with this company.

First, we look at the revenue. Here is a graph showing revenue growth over time, and I want to enlarge some parts of it to show you. So, here we are at the end of this last quarter.

It has grown by 15.4%. This is the growth rate over time. We have been looking at it for the past two years. This is September 2023. It rose to 12%, then fell to 10%, and then the growth rate started to increase. 12%, 13%, 14%, 15%, up to 16%, and now at about 15.5 %.

So, when I look at this, I find that Amazon's actual growth rate is really good. The last report was excellent. This company is growing rapidly. For a company the size of Amazon, it's still growing by more than 15%.

This is crazy. Of course, much of this growth is due to the AWS service.

Now, when we look at analysts' forward-looking estimates for the next eight quarters, i.e., the next two years, we find that they are settling at a level of 15 to 15.5 percent.

It will decline slightly over about four quarters, then accelerate again to about 17.8%. The reason for its rapid growth is that the AWS service is becoming increasingly large and expansive. It forms a larger part of the company.

When viewed on a more comprehensive timeline, this is what it looks like . We see Amazon's growth increasing every year at an accelerating pace. Amazon recently generated $797 billion in revenue over the past 12 months.

Therefore, it is operating at an annual rate of approximately $800 billion. Amazon will be the first company to achieve $1 trillion in revenue within 12 months, unless SpaceX manages to catch up and surpass it.

That's what Elon Musk says, but Amazon is already very close to that. By the end of 2028, its revenues are likely to exceed $1 trillion within 12 months.

The annual revenue rate, if you extrapolate from the last quarter, would be much higher. When I look at companies like Amazon and Google, I find that they are growing very rapidly.

Google is clearly growing faster, but Amazon is operating from a much larger base.

Then there are the business sectors, where AWS is growing at an extremely rapid pace . Therefore, we look at revenue and operating margin. One of the interesting things about Amazon is that its operating margins continue to rise.

Amazon's retail business has become more profitable, higher margins, and more efficient over time. It is indeed a profitable company. It is indeed very, very good. But right now, they have more than a million robots inside their warehouses.

Therefore, operations are highly optimized within the warehouses themselves, i.e., the logistics centers .

What hasn't been fully improved is the final mile of the delivery process. We still have plenty of people doing that, people delivering parcels. I think the next step Amazon will take is last-mile delivery .

You will have self-driving cars , and robots going out to deliver parcels. It sounds crazy, but it will become a tangible reality within the next ten years. We will also have drones delivering parcels .

It will be much more improved and efficient than their current work.

So, even with this huge revenue base, much of which has low profit margins, its margins will rise. Any increase in margin at a company with this level of revenue is significant.

The reason for investors' concern remains that Amazon takes all the profits from its retail business, all the profits from its advertising business , and all the profits from AWS, and directs them towards massive capital expenditures.

Free cash flow has swung deeply into negative territory in the last quarter due to the scale of their capital investment to build all these data centers. They know this is a once-in-a- lifetime opportunity.

Amazon is probably investing more than anyone at this stage, even more than other major technology companies.

Their last quarter saw a $34 billion shortfall in free cash flow in just one quarter. That's truly unbelievable. It's incredible how much money this company invests.

Now, when we look at history, you can form a better picture here. Amazon generates negative free cash flows during large investment cycles. Those we saw in late 2021 and early 2022 were for building its massive logistics infrastructure.

Do you remember when Amazon said we had huge demand because of Covid and more people shopping online, and that we would double our logistics network? Well, that's why the cash flow has become negative.

They made those huge investments. And that was costly. This also caused the stock to be sold . When investors see cash flow turn negative, it puts significant pressure on the price.

But then, when they came out of that investment cycle, you could see what happened. Free cash flow has begun to return to a positive trend, reaching $50 billion .

Now, I was thinking that free cash flow would reach $70 billion and $100 billion . In fact, my prediction at the time, in early 2023, was that Amazon would generate more free cash flow than any other company on the planet.

But those predictions were wrong because artificial intelligence has become much more important and much faster than most people expected. Artificial intelligence requires enormous computing power.

Amazon saw early signs of demand in its computing business, and instead of improving cash flow, they said we have another incredible opportunity. We need to change gears. We need to change course, we need to move forward and seize this opportunity.

The opportunity was costly, but it meant building AWS to become the largest cloud hosting company and the largest provider of artificial intelligence. So, their cash flows steadily declined as their investments in capital expenditures increased again.

Ah, the calculations are pushing this number down significantly. Now, we have a $47 billion shortfall in free cash flow over the past twelve months.

To give you an idea of their free cash flow margins , this is what it looks like. During investment cycles, the ratio drops to negative 6%. It rises back to 7 or 8% when they start improving profits, but when they return to investment mode, the index drops back into negative territory.

We are back exactly where we were in late 2021 at a negative 6% level. If we look at their free cash flow margin coupled with their capital expenditures over time, this also shows an interesting picture .

For example, the green free cash flow margin was actually increasing when they were slowing down the pace of their capital expenditures. Then, when they went through their first capital expenditure cycle, their free cash flow margin plummeted.

Then it starts to rise again when they ease the pressure , but with capital expenditures increasing significantly again, and even more so this time for artificial intelligence, that free cash flow margin decreases .

But the one thing I will point out here is that the amount of money they spend on capital expenditures has almost tripled . So, it has risen significantly, yet the free cash flow margin is only close to the lows it was at in late 2021.

This means that Amazon is , in essence, a more productive cash flow company.

Another way to look at this is that if Amazon hadn't pursued this enormous opportunity in artificial intelligence, it would have been one of the most cash-flow-producing companies in the world.

You can simply exclude all this money that they spend on capital expenditures, which would have returned to the investor in the form of cash flow. They would have generated well over one hundred billion dollars in free cash flow.

So, this is all a deliberate decision. Amazon is seizing a huge opportunity that they believe will be worthwhile, and they believe it will justify a higher return. Historically, this has always been the case.

Historically, with Amazon, analysts have always been concerned. Whenever they seize any big opportunity, expand, or do anything costly, investors feel some apprehension.

When we look at earnings per share, we arrive at another graph. Like many big technology companies, the data itself is accurate, but misleading without context. Amazon's earnings per share have risen significantly over the past year, but much of that has been due to Anthropic.

When you exclude anthropic considerations and look at future projections, the picture becomes clearer and fairer. For example , you have one-off anthropic gains that made earnings per share jump, and when those gains go off estimates, you can see them return to their normal trajectory.

So, if you remove that part about Anthropic, you'll get a better idea of how much Amazon's earnings per share have actually grown. In general, when I look at Amazon , I see the story of a company that can generate huge amounts of cash flow, and it does so in its core business, but instead of channeling it to investors through buybacks and dividends, it channels it towards massive investments.

They believe that artificial intelligence is an investment worth pursuing, and I agree with them. If you don't share this view, you won't invest in Amazon. It's not the right company to keep. But I agree that this is a real opportunity.

For example, we look at Amazon's business segments over time. If you filter the results to be limited to "Amazon Web Services" ( AWS) only, we can see that it has grown by 39%.

Currently, market expectations are between 40% and 42%. But this growth is already very rapid . AWS services are huge, and the 39 % year-over-year growth is incredible. It generated revenues of $45.9 billion.

AWS services are extremely large. It continues to grow at a very rapid pace, and will continue to accelerate.

While it grows, profit margins also remain stable. AWS's profit margins now stand at 38.7%. Therefore, it is an incredibly fast-growing and highly profitable company.

Amazon is aware of this and wants to invest more. AWS services is a huge business by any measure. It's hard to put these numbers in context, but they expect AWS growth to jump from 39% to more than 40% annually in 2027 and 2028.

So, it's not just about a good jump over the next two quarters. No, they believe it will grow by more than 40% over two years. Two full years. Andy Jassey says on the call that he believes it could become a trillion-dollar revenue company within 5 to 10 years, which is crazy.

He is not talking about the entire Amazon company. He's just talking about AWS reaching $1 trillion in revenue.

When he framed this opportunity, he stated that Amazon is not just an artificial intelligence company through AWS. It's about moving to the cloud. Remember, even before the advent of artificial intelligence, Amazon was growing its AWS services very rapidly.

It indicates that approximately 85% of global IT spending still relies on local infrastructure . Therefore, there are more people who can move their computing systems to the cloud.

He described transformations that would take 10 to 20 years, during which the balance could shift in favor of cloud services. With 85% of global IT remaining local, Andy Jassey believes that the majority will move to the cloud over time. This resembles a major structural shift.

In this case, AWS is believed to be "Visa". It is the company that people will turn to when they eventually move from on- premises systems to the cloud. Because the cloud has a huge number of advantages that local systems do not offer.

Overall, I liked the earnings report. I think Amazon's stock should be higher today.