$AMZN · Mark Roussin, CPA · 2026-11-03

Amazon has just announced its earnings, and I have to tell you that these results are making me seriously consider increasing my stake in it. Don't misunderstand me , the results weren't entirely positive, but they are building something huge.

While investors were concerned about spending on artificial intelligence , Amazon achieved impressive results across the board. We've seen this scenario before. Amazon has invested heavily to expand its e-commerce business.

Amazon has invested heavily to speed up delivery processes. Amazon has invested heavily in building cloud computing services, and is now investing heavily in building artificial intelligence.

Each time they invested large sums of money, the return was rewarding.

So, you need to ask yourself: Do you trust the current management team or not when it comes to these investments?

Is Amazon building one of the most profitable companies in the world, or is it spending excessively aggressively to pursue the artificial intelligence opportunity ?

Okay, with that said, let's get back to Amazon and start with the numbers since they're recent , as the company announced its third-quarter results last week. Amazon announced revenues of approximately $202 billion for the third quarter . This represents a 12% year-on-year growth .

12% may not seem so exciting compared to some of the semiconductor or high-growth companies we discuss on this channel, but remember that Amazon generates more than $200 billion in revenue in a single quarter, which is incredible.

Here is an important detail. Amazon moved its "Prime Day" event to the second quarter of this year, whereas the event took place during the third quarter of last year, making the comparison not entirely accurate.

But the fact that they achieved 12% growth without "Prime Day" this year compared to having it last year tells a completely different story.

Operating income rose from $17.4 billion to $28.1 billion. This is approximately 61% growth . Think about that for a moment. I just told you that revenue grew by 12%, but operating income increased by more than 60%.

This means the company has become more efficient.

Furthermore, Amazon announced an operating margin of approximately 14%. This is the highest quarterly operating margin in the company's history. This particular combination is what I love to see.

A company that continues to grow its revenues, but has become more efficient with operating income growing faster.

You might be wondering, how does this happen? Through previous investments. Now, why is this important ? Because Amazon has historically operated with relatively low profit margins due to its massive retail and logistics operations.

But we see the company becoming more efficient, and its higher-margin segments now making up a larger part of the whole pie.

When a company with quarterly revenues exceeding $200 billion begins to expand its operating margins, relatively small improvements can translate into billions of dollars of additional operating income .

This is called operational leverage , and I think this is one of the most compelling parts of the Amazon investment thesis.

But there is one sector that truly tells a story of growth and efficiency, and that is Amazon Web Services (AWS).

Amazon Web Services announced quarterly revenues of approximately $46 billion. That's a 39% year-on-year growth, and here's what makes that particularly impressive. Amazon Web Services is already a huge business that grows every quarter.

We're talking about an annual revenue rate approaching $185 billion, and yet growth is still accelerating at the fastest pace we've ever seen, which is truly remarkable.

In fact, management described this as Amazon Web Services' fastest year-over-year growth in nearly 5 years . Now, I want you to think about this and what it means for this business.

The world's largest technology companies are spending huge sums to build artificial intelligence infrastructure, and some investors have begun to wonder whether the AI investment cycle is slowing down.

Or are they wondering if there will be a return on investment soon? And that's the problem. Many investors, including those who call themselves professionals, only look at certain numbers and take them at face value.

But when you look at Amazon Web Services' (AWS) growth of nearly 40%, demand doesn't appear to be fading. In fact, they have a demand that exceeds what they can provide online.

And it's not just about revenues. Amazon Web Services generated approximately $18 billion in operating income during the quarter. This is up from about $11.4 billion a year ago.

Therefore, operating income increased by approximately 55% for this sector alone . As for Amazon Web Services' operating margin , it was an impressive 38.7%. It's still slightly lower than the previous quarter, but we're talking about an exceptional level of profitability.

This is an important distinction. Amazon Web Services is growing rapidly while generating huge operating profits.

But here's what really caught my attention . Management indicated that it expects Amazon Web Services revenue growth to exceed 40% not only next year, but also in 2028. These are just predictions, not guarantees.

But we're talking about a management team that never gives such far-reaching guidance, which tells me they're confident that the figure could end up being even higher, and the growth rate even higher, because we're talking about a company whose annual revenues are approaching $200 billion .

Amazon believes it can continue to grow at an exceptional pace.

Now, where does this demand come from? From several places. Companies are moving more workloads to the cloud, developing AI applications, the demand for inference is increasing, and organizations have begun deploying AI agents in their operations.

I mean, as an investor, you can't look at these cloud growth numbers that we've seen from companies like Microsoft, Alphabet, and now Amazon, and then tell me that AI is slowing down. You simply cannot do that.

In addition, another major future growth driver is Amazon’s continued investment in custom AI chips, including “ Trainium”. I think this is particularly important because, as the cost of AI computing increases, customers will look for ways to improve performance while controlling costs.

Amazon has the opportunity to offer both traditional GPU-based infrastructure and its own custom chips. This could strengthen its competitive position over time.

This is another important point. The opportunity for artificial intelligence is not limited to training large models. As more companies begin deploying AI applications, the demand for inference may become an increasingly important source of recurring cloud revenue.

And again, AWS is well-positioned to take advantage of that.

But I think AWS has an attractive mix of scale, corporate relationships , profitability, and infrastructure capabilities. This is why Amazon will remain a stock in my portfolio, and one that I continue to add to when prices fall.

Now, here's something I don't want investors to ignore. Amazon is not just an artificial intelligence and cloud computing company . It also operates one of the world's largest retail and logistics networks .

In fact, the retail sector is the largest part of its business, so it is difficult to ignore it . But this sector has become much more profitable, which is something I am pleased to see.

Let's take a look here at the company's business in North America , where revenues rose by about 6% to reach approximately $113 billion. But operating income rose from about $4.8 billion to $8.7 billion.

This is an increase of more than 80 % again. Overall revenue is growing, but operating income is growing faster as the company finds greater efficiency.

If Amazon can continue to improve execution and efficiency , delivery density, inventory management, and automation, margins could continue to expand even further. Remember that Amazon invested huge sums in building its fulfillment centers, and we are now seeing those efficiencies come to fruition.

Now, there is another business that I think is worth paying attention to, and that is advertising. Amazon has quietly become a major player in the field of digital advertising.

The advertising opportunity is particularly interesting because Amazon knows what customers are actually shopping for. That is highly valuable information. A consumer searching for a product on Amazon may already be close to making a purchase decision, and this is what makes Amazon's advertising platform attractive to brands.

Over the past year, Amazon has generated $78 billion in advertising revenue, and it is growing every year, registering growth of approximately 21% year-on-year. I believe that the combination of retail efficiency and advertising growth may continue to support margin expansion.

However, we are not finished yet. There is another opportunity, and that is what I love about Amazon. It is a well-diversified company, and because of that, it can afford to invest in other areas of the business.

But the next opportunity I want to talk about is automation and robotics. I personally believe that robotics is a great area to make money in as an investor over the next decade and beyond.

In fact, I am working on a video about this very topic . For Amazon, they have spent years investing in technologies designed to improve productivity across their order fulfillment network .

And those systems are becoming more sophisticated year after year. However, the company can reduce implementation costs even further. These savings are not guaranteed, as implementing new technologies requires capital.

But I think Amazon has a great opportunity to improve the profitability of a business that already generates hundreds of billions of dollars in annual revenue. This is something I find very appealing.

However, when I looked at Amazon, " AWS" is a strong part of the business and its results are strong. Their core business, retail, also achieved strong results.

Yes, both companies spend more cash than they generate, and that's a negative thing. But of the two, Amazon seems to be in a much better position in my opinion.

Amazon is not immune to the turmoil. AI-powered shopping assistants may ultimately direct customers to competing markets. In fact, the agent for "Muse" from "Meta" is banned on Amazon.

But I think Amazon is working on its own personal shopping assistant, which will be a huge beneficiary.

But here's my point of view. Amazon appears to have greater opportunities to use artificial intelligence to expand its current profitability, while Alphabet faces a direct risk of AI disrupting one of its most profitable businesses. This is the distinction I'm focusing on.

Here's the next reason why I prefer Amazon. They have operational momentum. Amazon's consolidated operating income rose by approximately 61%. Alphabet's operating income rose by about 30%.

Both are strong results, but Amazon demonstrates great operational efficiency across multiple businesses, and this gives me more confidence in the company's ability to expand its profitability over time.

But there is one key issue at Amazon that we definitely need to discuss, and that is free cash flow, or rather, the lack of such flow. Here I want to challenge the optimistic argument, because if we are going to talk about doubling our position in Amazon or investing heavily to increase our share, we need to understand the risks.

The largest of these is currently capital spending.

Amazon recorded nearly $168.3 billion in operating cash over the past twelve months. This was an increase of approximately 30% year-on-year. So, the core business activity generates huge amounts of cash , but that's where the problem lies.

Once capital expenditures are taken into account, Amazon recorded nearly negative $46.9 billion in free cash flow during those twelve months. This compares to a positive free cash flow of approximately $32.9 billion at the end of 2024.

Think about that. We have gone from generating nearly $33 billion in positive free cash flow just a few years ago to consuming more than $46 billion. This is a huge decline, and the main reason is the investment we are seeing in artificial intelligence infrastructure .

Amazon spends huge amounts of money on data centers, advanced computing systems , and other infrastructure.

Some investors might say that this is perfectly fine. Amazon is investing today to generate future growth, and there is certainly merit to this argument, which I personally agree with, but that does not mean that I do not share the concerns of others.

This is the main concern that investors have at the moment. At some point, these investments need to generate an attractive return on invested capital, because growth alone does not create value for shareholders.

You can increase revenue quickly and yet destroy value if the cost of generating that growth is too high.

That's why I don't want to ignore negative free cash flow just because AWS is growing rapidly. Amazon now expects about $220 billion in capital expenditures this year, and management has already hinted that those numbers will increase in 2027.

This is extraordinary, and it creates several risks.

First, if demand for artificial intelligence slows down—although there are no indications of this currently, but there are always skeptics—then if this happens, Amazon could find itself with an expensive infrastructure that is not being used as efficiently as expected. I just need to mention that.

Secondly, technology is changing rapidly . The useful economic life of some computing assets may be shorter than investors expect . Third, if capital expenditures continue to rise at a faster pace than operating cash flow , free cash flow may remain negative for an extended period, which could ultimately put pressure on valuation.

Now, here's what gives me some confidence. AWS is growing rapidly, the retail business itself is becoming more profitable, and operating cash flow is steadily increasing. So, Amazon has huge cash-generating businesses that help fund these investments, but I still want to see the company prove that this spending will ultimately translate into much higher free cash flows .

This is because if that does not happen, this investment thesis becomes much less attractive.

This leads us to the evaluation. Now, this is the question that will ultimately determine whether I am interested in doubling my stake in Amazon or increasing it significantly.

Again, it is indeed one of my top five holdings. Is the stock trading at an attractive value? Because I might like business. I may like the growth of AWS that we are seeing or the expansion of margins, and I may believe that Amazon has a tremendous opportunity in the world of artificial intelligence, but that does not mean that I am prepared to buy it at any price.

So, when we look here at the forward price-to-earnings ratio , we can see that the stock is trading at 24 times, which is much lower than its five- year historical average of 46 times.

But let's not pretend that this is the level at which the stock should be trading, given how large the company is now. The metric I like to focus on when looking at Amazon is the enterprise value to EBITDA ratio, and I've found that when I buy below the five-year average, I get very good results on my invested dollars.

Currently, we can see that the stock has a future enterprise value to earnings (EV to EBITDA) ratio of only about 10 times, which is a very low level and close to the lowest levels we have seen in the company's history.

This is how you can find deals as an investor, where something is overshadowing strong business activity, and you can buy when the price is low, where the company's fundamentals improve while the stock price falls .

But this in itself does not eliminate the problem of negative free cash flow, and here I think investors should be cautious; Because if we assume that capital expenditures will eventually decrease , free cash flow may improve significantly.

But what if spending remains high for years? What if AWS's growth suddenly slowed down ? Or what if the company needed to continue investing heavily just to maintain its competitiveness?

These are very different results, and will justify very different assessments.

So, when I evaluate Amazon today, I'm not simply looking at its current price-to-earnings ratio. I am looking at the potential for earnings growth over the next several years. I am assessing the sustainability of AWS's growth.

I am studying the opportunity to expand profit margins in the retail sector, and trying to estimate what normal free cash flow will look like in the future.

Here is my stance on that. After reviewing these earnings, Amazon is one of the companies I am very keen to increase my investments in and I am likely to do so very soon. AWS's business is constantly accelerating.

Operating income grows much faster than revenue. Profit margins have expanded in the retail sector, and the company has many attractive long-term opportunities related to artificial intelligence, advertising, automation, and cloud computing .

But I also have concerns. Free cash flow is in a very negative state. Capital expenditures are constantly rising, and Amazon faces significant competition across many of its businesses. Therefore, I will not ignore these risks.

However, when I compare Amazon to Alphabet after their recent earnings reports, I easily prefer Amazon for the additional investment.

But I think Amazon offers an attractive mix of growth opportunities and improved operating profitability. I like to accumulate shares over time and add slowly because no stock goes up forever.

I can be patient and buy when prices are low, and I may benefit from additional fluctuations if the market provides them.

Following these recent earnings reports, which stock would you prefer to own for the next five years, Amazon or Alphabet? Do you think Amazon's massive investment in artificial intelligence will eventually pay off?

Or are you worried about negative free cash flow?