Amazon (NASDAQ:AMZN) Stock Holds $221.47 as AWS and Ads Power Long-Term Growth

NASDAQ:AMZN Drops Post-Earnings Despite Closing at $221.47

Amazon.com Inc. (NASDAQ:AMZN) closed the latest session at $221.47, up 0.17% on the day, yet sentiment remains cautious following a steep post-earnings sell-off last week. The market reaction — a near 7% slide after Q2 results — came despite robust growth across cloud, advertising, and e-commerce. AWS remains Amazon’s profit engine, delivering $30.9 billion in revenue for the quarter, up 17.5% year-over-year, but a slower pace of operating profit expansion compared to Microsoft’s Azure and Google Cloud triggered investor disappointment. While the headline reaction was negative, the underlying fundamentals point toward long-term growth, supported by aggressive infrastructure investment and a diversified revenue mix.

AWS Growth Faces Perception Gap Against Rivals

Amazon Web Services remains the single largest contributor to operating profit, generating $10.2 billion, over half of Amazon’s $19.2 billion total operating income. The 17.5% sales increase equates to an additional $4.6 billion in quarterly revenue compared to last year — a scale unmatched in the industry. However, Microsoft reported 39% Azure growth and Google Cloud posted 32%, creating an optics problem for AWS despite its leadership position. Unlike Azure’s growth, partly fueled by credits issued to AI startups and booked as revenue, AWS’s gains stem from organic demand across enterprise and AI-driven workloads. The segment’s annualized revenue run-rate now exceeds $120 billion, a figure that underscores market dominance even if percentage growth appears slower.

Advertising Emerges as a Profit Powerhouse

Advertising revenue reached $14.3 billion, climbing 22% year-over-year and making it Amazon’s fastest-growing segment. High-margin ad placements targeted at high-intent shoppers continue to expand profitability, with potential EBIT margins in the 35–40% range — comparable to or exceeding those of Alphabet and Meta. This strength has offset softer-than-expected growth in third-party seller services, which rose 11% to $40.3 billion. The link between Amazon’s retail ecosystem and its ad business is clear: as marketplace sellers increase, ad spending grows proportionally, reinforcing a feedback loop that strengthens both revenue streams.

E-Commerce and Subscriptions Sustain Solid Gains

First-party online store revenue rose to $61.5 billion (+11%), while physical stores, led by Whole Foods, grew 7% to $5.6 billion. Subscription services, anchored by Amazon Prime, generated $12.2 billion, up 12% year-over-year, signaling continued resilience in customer loyalty. Although subscription growth has slowed from its peak years, it remains a stable, recurring cash flow source that bolsters Amazon’s ability to fund large-scale Capex projects.

Heavy Capex Pressures Margins but Fuels Future Growth

Capital expenditures surged to $118 billion for the quarter, well above estimates of $105 billion. This aggressive investment is aimed at AWS data center expansion, logistics modernization, and AI infrastructure. Operating margin contracted due to higher depreciation, stock-based compensation, and foreign exchange headwinds. Nearly half of the margin decline came from seasonal stock-based pay, while elevated depreciation reflects the rapid scale-up of infrastructure. Amazon’s CFO acknowledged near-term profitability pressure but emphasized the long-term payoff in capacity, speed, and AI readiness.

Valuation Points to Long-Term Upside

At $221.47, Amazon trades at roughly 32x forward earnings, far below its historical P/E average near 59x and well under its five- and ten-year averages above 70x. Discounted cash flow modeling suggests that even under conservative assumptions — 15% AWS growth, 10–15% ad growth, and mid-single-digit e-commerce expansion — the company is fairly valued today. In a bullish case with AWS sustaining 20% growth and ad margins approaching 40%, fair value could rise toward a market cap of $4.19 trillion, representing nearly 93% upside from current levels.

Outlook: Strong Buy Despite Volatility

The short-term sell-off appears disconnected from fundamentals. AWS remains dominant, advertising is scaling at record pace, and Capex investments are likely to enhance operational leverage over the next three years. At $221.47, the stock presents a compelling long-term Buy case for investors willing to look beyond near-term margin pressure and focus on strategic moat expansion.

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