Amazon’s Former Highs Mean Nothing in This New Paradigm
Amazon's stock sits below its old peak, and most investors treat that gap as a warning. A closer look at what is actually driving the business suggests the market may be pricing a company that no longer exists.
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I have added to my Amazon (NASDAQ:AMZN | AMZN Price Prediction) position after every recent earnings report, and I have no plans to stop. Some investors worry the stock got expensive reaching its old highs. To me, those highs were the price of an older company. The Amazon I own today rents, designs, and sells the computing power behind artificial intelligence, and it also runs a retail and advertising business.
AWS Acceleration Keeps Pulling Me Back
Amazon Web Services is what keeps bringing me back. AWS revenue rose 37% to $42.23 billion in the second quarter, its fastest pace in 18 quarters. Growth over the last four quarters ran 20%, 24%, 28% and 37%. Backlog reached $496 billion, and management said most AWS capacity for 2027 is already reserved. Andy Jassy said during the call that AWS “very possibly” becomes “a trillion dollar annual revenue business for us in time.”
Three Reasons the Data Backs Me Up
First, profits are growing faster than sales. Operating income rose 43% to $27.46 billion on revenue growth of 19.6%. AWS posted a 39.4% operating margin, so the fastest-growing unit also makes the most on each dollar of sales.
Second, advertising gives me a second engine. Ad revenue grew 26% to $19.81 billion, and growth has held between 23% and 26% for four straight quarters.
Third, the price still works for me. Amazon trades at a forward P/E of about 24, and at $246.15 the shares sit below their 52-week high of $287.2. Over the past 90 days, analysts raised their average 2027 EPS estimate to $10.4849 from $9.9564. Expected earnings keep rose while the stock trades below that peak.
Why My Money Skips Walmart and Microsoft
Walmart (NASDAQ:WMT) is the obvious retail alternative. Its revenue grew 5.94% last quarter, and it trades near 39 times earnings. Amazon trades near 34 times on the same trailing measure. With Amazon, I get faster growth at a lower multiple.
The harder call is Microsoft (NASDAQ:MSFT). Azure grew 43% last quarter, up from 39% a year earlier. Over about the same stretch, AWS went from 20% to 37%. Microsoft’s More Personal Computing segment also shrank 4%. I prefer the cloud business that is speeding up faster, with retail and ads behind it.
Risk That Could Hurt Me
My biggest worry is cash flow. Over the last 12 months, free cash flow fell to -$7.6 billion. Quarterly capex hit $54.21 billion, up 68.4%, and debt due beyond a year rose to $119.1 billion from $65.6 billion. Reported net income also includes a one-time $53.4 billion gain, mostly from Amazon’s stake in Anthropic. Should AI demand cool before these data centers pay off, this spending will makes less than planned.
I still own the case because the spending holds up on the numbers. Operating cash flow rose 39.6% to $45.39 billion. Management says servers pay for themselves in a little less than three years and last five to six years, and most AI capacity is signed on five-year contracts. Interest coverage stands at 35.17x. All that capex also flows to the power, cooling, and networking suppliers behind the expansion, seven of which we profiled in a free AI infrastructure report.
What Keeps My Buy Button Active
Amazon forecast third-quarter operating income to $22.5 billion to $26.5 billion, against $17.4 billion a year earlier. Management also said 85% of global IT spending still runs on companies’ own servers rather than the cloud. Old highs show me where Amazon has been. The backlog shows me where it is going, so I am still adding to my position.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
