Why I'm Buying More Amazon - Full Earnings Analysis

Amazon delivered a blowout quarter with revenue up 20% to roughly $800 billion annualized, led by AWS reaccelerating to 37% growth and surpassing estimates on both growth and margin, while advertising accelerated to 26% with AI and chip businesses each topping a $25 billion annual run rate. Operating income jumped over 30% to a record $27.5 billion, margins hit all-time highs, and operating cash flow surged 40%, despite massive capex that the speaker argues is value-accretive given strong ROI and a clear line of sight to free cash flow after year three. With remaining performance obligations exploding to $496 billion, Amazon’s $200 billion capex plan appears demand-driven, and even after a 15% stock jump the shares trade below historical cash flow multiples. The speaker concludes Amazon remains undervalued, citing a conservative DCF pointing to 22% annual returns, making this a "fantastic quarter" and the stock still attractive near all-time highs.

• ▶ 1:13 Amazon’s Q2 revenue grew 20% YoY to ~$800B annualized, while AWS re-accelerated to 37% growth and operating income rose >30% to $27.5B.
• ▶ 2:59 AWS beat estimates by 5.4% on growth and 6% on margin — making it the standout segment — while advertising beat by 2.4% and accelerated to 26% growth.
• ▶ 3:31 AWS AI and chips businesses each surpassed a $25B annual run rate with triple-digit growth, and Amazon Business reached $60B in annualized gross sales.
• ▶ 5:57 Amazon guided Q2 net sales to $197–202 billion (9–12% growth) and operating income to $22.5–26.5 billion, implying over 30% operating income growth.
• ▶ 6:37 Operating cash flow surged 40% in the quarter, but heavy capex ($54.2B quarterly, $173B TTM) means negative free cash flow; the speaker argues 4–5% borrowing costs still create value if returns exceed 20%.
• ▶ 7:51 All major segments grew double digits and accelerated, with advertising up 26% (~$80B annualized) and AWS accelerating 9% QoQ; AWS also added more net revenue than Google Cloud despite Google Cloud’s higher headline growth rate.
• ▶ 11:01 Amazon's $200B 2026 CapEx plan has clear line of sight to returns: server/networking spend is demand-driven, breaks even in just under 3 years, and assets last 5-6 years with 5-year contract terms—unlocking significant free cash flow after year three.
• ▶ 12:32 Claude-based math validates Jassy's ROI: $200B CapEx with ~$66.7B annual cash flow yields a 3-year break-even (~20% annual return); if useful life extends to 6 years or cash flow rises to $70B, returns jump to ~28% because post-payback years are nearly pure profit.
• ▶ 9:46 AWS is now a $169B annualized revenue business (would rank 24th on the Fortune 500), with both its chips business and AI revenue run rate exceeding $25B and growing triple-digits—underscoring AWS's massive scale and long-term upside beyond earlier "few hundred billion" expectations.
• ▶ 14:49 Amazon CEO Andy Jassy says Trainium demand is huge and Amazon may sell Trainium chips directly to third parties outside AWS, which could become another revenue accelerant.
• ▶ 15:51 Amazon's remaining performance obligations (RPOs) hit $496 billion, up about 2.5x from Q3 2025 (~$200B), explaining the massive CapEx investment.
• ▶ 16:23 Advertising is accelerating to $76B trailing-twelve-month revenue (24% growth), while AWS reaccelerated to $148B TTM revenue with 27.5% growth, showing strong ROI on CapEx.
• ▶ 17:43 Amazon's revenue growth is accelerating, reaching 16% on a trailing twelve-month basis, supporting the view that heavy CapEx is paying off.
• ▶ 18:17 Operating margin hit an all-time high of ~12%, while gross margin reached 50.8% and operating cash flow margin hit 20.8% — showing margins expanding as growth accelerates.
• ▶ 19:34 Even after a 15% stock jump, Amazon trades at 18x trailing operating cash flow, below historical averages, and a conservative DCF (20% OCF growth, 20x terminal multiple) still points to meaningful upside.
• ▶ 20:34 Despite using a conservative price-to-operating cash flow multiple well below Amazon's historical trading range, the DCF yields a 22% CAGR, a $371 fair value, and a $500 future stock price by end of 2028.
• ▶ 21:19 The speaker maintains Amazon is undervalued, calling it a "fantastic quarter," with the stock as his second-largest position and one he's added to significantly over the past year.
• ▶ 21:36 Even with shares near all-time highs, every analysis of the business and stock suggests it still offers value, with expectations for continued acceleration in coming years.

• ▶ 0:00 Intro and Q2 Earnings Highlights (0:00 - 5:59) - - Recaps the prior Amazon thesis and reviews Q2 revenue, cash flow, estimates, and business updates.
• ▶ 5:59 Guidance, Cash Flow, and Cloud/Advertising Growth (5:59 - 9:47) - - Covers Q2 guidance, operating cash flow, segment growth, advertising strength, and cloud comparisons.
• ▶ 9:47 Conference Call, CapEx, and AWS Long-Term Potential (9:47 - 14:51) - - Highlights AWS scale, the $200B CapEx ROI discussion, Claude calculations, and AWS's long-term potential.
• ▶ 14:51 Trainium, RPOs, and AWS/Advertising Reacceleration (14:51 - 17:32) - - Discusses Trainium sales potential, RPOs, advertising acceleration, and AWS revenue momentum.
• ▶ 17:32 Cash Flow, Margins, and DCF Valuation (17:32 - 20:36) - - Shows revenue/operating cash flow momentum, record gross margin, and a DCF valuation.
• ▶ 20:36 DCF Outputs, Thesis, and Sign-Off (20:36 - 22:15) - - Details DCF assumptions, expected return, the undervaluation thesis, and closes out.