Is AWS Worth More Than All Of Amazon?

Of Amazon’s (NASDAQ: AMZN | MSFT Price Prediction) $717 billion in revenue last year, $128 billion came from AWS. Amazon’s e-commerce business grew at about 8%. The AWS revenue growth was 20%.

A more telling number is that, out of Amazon’s $80 billion in operating income, 56% came from AWS. Fundamentally, these are two different businesses.

AWS is the largest cloud computing business in the world. By some measures, its market share is about 29%. Microsoft (NASDAQ: MSFT) Azure accounts for 23% of the market, placing it in second place.

The leap of faith regarding the AWS valuation is whether AI will accelerate its growth at a faster pace than it is today, and whether this will apply directly to AWS. AWS’s numbers will also depend on substantial capital expenditures, which over the next two years could amount to nearly half a trillion. (E-Commerce said it would use AI, but primarily for logistics and personnel management.)

To go further, one aspect of AWS’s value proposition is the extent to which it is regarded as an AI pure-play. OpenAI is valued at $830 billion. Its revenue last year was about $20 billion. That is a 42x ratio. Applied to AWS, the figure would be as high as about $5.4 trillion. Since it would be difficult to establish that AWS is a pure-play AI, the multiple will be well below that. At half that multiple or 21x, AWS would be worth $2.6 trillion. (This AWS multiple could be calculated differently by different analyses. It also does not allow for capex.)

On the other side of the valuation formula is the fact that e-commerce revenue-to-market-capitalization ratios are approximately 4x, based on eBay’s (NASDAQ: EBAY) numbers. Amazon’s e-commerce business would be worth $2.4 trillion based on this calculation.

These analyses show that, together, the two pieces of Amazon are worth $5 trillion. ($2.6 plus $2.4) That number exceeds Nvidia’s (NASDAQ: NVDA), which is ranked No. 1 in the world by market capitalization.

AWS and Amazon should probably be separated as public companies because the businesses have less and less in common each year. This is true for revenue growth, margins, and capital expenditure. For investors, it makes decisions about shareholding more straightforward. At the end of the day, however, each is worth more than the market currently values them and the entire company.