Numbers

The Numbers

Amazon's earnings power has inflected. FY2025 operating margin hit 11.2% — the highest in the company's history — on $716.9B of revenue, lifting reported net income to $77.7B. Yet the stock trades at 17.2x EV/EBITDA, the lowest multiple since 2008, because the same year saw capex jump 59% to a record $131.8B (18.4% of revenue), compressing free cash flow to $7.7B. The market is wrestling with one question: is the AI-era capex cycle a temporary bulge that converts into AWS operating leverage, or the new permanent floor? Operating-margin trajectory through 2026 — as today's capex turns into tomorrow's depreciation — is the single number most likely to rerate or derate the shares.

Snapshot

Revenue & Earnings Power — 20 Years

Revenue compounded at 23.6% over twenty years (8.5B → 716.9B) but the operating-income line only inflected after FY2017 — when AWS scale tipped the consolidated mix. The two reverses (FY2014 retail-investment year, FY2022 over-build hangover) were both followed by record margin years, suggesting Amazon's pattern is invest hard → digest → margin breakout.

Margins — The Story Inside the Story

Gross margin has climbed every year for 15 years (26.5% → 50.3%), reflecting the ongoing mix shift toward AWS, advertising, and third-party seller fees. Operating margin has more than doubled in two years (5.3% in 2021 → 11.2% in 2025), the single biggest swing in the company's history. The popular "low-margin retailer" narrative is broken — but the new floor is not yet proven.

Recent Momentum — Quarterly Revenue YoY

Growth re-accelerated in the back half of FY2025 and printed +16.6% in Q1 FY2026 — the highest top-line growth rate since the post-pandemic comp years. Operating income rose 30% YoY in the same quarter, confirming the operating-leverage thesis is still working at the margin even as capex peaks.

Cash Generation — Are the Earnings Real?

Operating cash flow is exceptional and accelerating — $139.5B in FY2025, up from $116B prior — and OCF / Net Income runs at 1.80x over the last 5 years, well above the 1.0–1.2x range typical of mature large-caps. Earnings are real. The compression is happening one line down: capex has tripled in five years (40 → 132 B), turning what should be a $90B+ FCF business into a $7.7B FCF print in FY2025.

Capital Allocation

Amazon does not pay a dividend and has done effectively no buybacks since the one-off $6B repurchase in 2022. Every dollar of cash flow is being reinvested in fixed assets — by far the most extreme capex-to-revenue ratio of any mega-cap technology company today (18.4% vs MSFT 26%, GOOGL ~23%, but on a much lower-margin base). SBC has stabilized at ~3% of revenue, modest by tech standards.

Balance Sheet — Pristine Despite the Spend

The balance sheet is the easiest call in this report. Debt-to-equity has fallen from 0.96 to 0.37 in three years, cash sits at $123B against $66B of long-term debt, and net leverage is 0.21x EBITDA. Amazon could double capex again before any covenant pressure shows up. Moody's (per the latest filings) has the outlook positive on the existing investment-grade rating.

Returns on Capital

ROIC has averaged 15–18% in the last three years — strong for a business with this level of asset intensity, and well above its weighted cost of capital (~8–9%). The 2022 dip was an over-build year; the recovery has been clean.

Valuation — Now vs Its Own 20-Year History

This is the most important chart on the page.

Amazon is trading at an 18-year EV/EBITDA low excluding the 2008 GFC. The 5-year mean is 20.3x; the 10-year mean is 28.4x. At 17.2x, the stock is roughly 1 standard deviation below its decade-long average. The de-rating is real and persistent — the market has not paid above 30x EBITDA for Amazon since 2020.

The P/E compression is even sharper: from north of 75x for most of 2018-2020 to 32x today as net income has finally caught up to the share price. This is no longer a "story P/E" — it is rating against real, sustained earnings.

Peer Comparison

Amazon's blended business sits awkwardly between two cohorts: it has the growth of mega-cap tech (11.6% 4y revenue CAGR) but only one-quarter of MSFT's operating margin because the retail mix anchors the consolidated rate. On EV/EBITDA, AMZN trades below MSFT, GOOGL, COST, and WMT — only META is cheaper, despite having a 30-point margin advantage. The peer-relative discount is the cleanest version of the bear case made visible.

Peer Positioning — Margin vs Multiple

Amazon and Meta sit in the lower-left "underpriced relative to margins" quadrant. Costco and Walmart command tech-like multiples on retail-like margins because of the durability of their cash flows. The market is currently treating AMZN's mix shift toward AWS + advertising as at risk — a stance that the operating-margin doubling since 2021 is gradually undermining.

Fair Value & Scenario

Anchored on FY2026 EBITDA estimate of ~$200B, the base case of $305 implies a 16% gain from $263 — broadly in line with the TipRanks consensus 12-month target of $286 (range $175 – $325, per 45 sell-side analysts). The bear case requires the market to permanently capitalize today's elevated capex into the multiple; the bull case requires AWS to re-accelerate from its current mid-teens into the 20%+ band where it traded in 2018-2021.

Bottom Line

The numbers confirm that Amazon is no longer the low-margin, perpetual-reinvestment story of 2015-2020 — operating margin has doubled in two years, ROIC sits at 15-18%, and the balance sheet has actively de-leveraged through the most aggressive capex cycle in company history. They contradict the "AI capex is destroying free cash flow forever" narrative: OCF of $140B is funding the build with $30B+ of headroom; the FCF compression is timing, not quality. What to watch next: AWS revenue growth and segment margin in the back half of FY2026 — that is when today's $132B in capex starts hitting the income statement as depreciation, and when the operating-leverage thesis either holds the 11% line or compresses back toward 8%.