Amazon's Cloud Is Accelerating While Its Cash Flow Goes Negative. The Long Case Still Holds.
AWS grew 39% for a sixth straight quarter of faster growth, while trailing free cash flow hit −$47B. At 22x 2027 earnings, the market is pricing Amazon's spending, not the payoff. Long over two years, $300 target.
Maz Vantage ·
The view: long Amazon over a two-year horizon, to late 2028, with a target of $300, about 25% above Friday's $240.35 close. The Q3 report missed slightly on earnings and came with a soft holiday outlook, and trailing free cash flow is now −$47B. But AWS grew 39%, its sixth straight quarter of faster growth, and it now earns almost two-thirds of Amazon's operating profit. At about 22x 2027 earnings, the market is pricing the spending, not the payoff.
The quant grade
The Maz Rating grades Amazon A, 4.42 out of 5 against 506 Consumer Cyclical companies, recalculated on November 1 after the report.
| Factor | Grade | Score |
|---|---|---|
| Profitability | A | 4.78 |
| Growth | A | 4.70 |
| Financial Health | B+ | 3.84 |
| Momentum | B+ | 3.23 |
| Valuation | C | 2.40 |
How the market took it
| Q3 2026 | Reported | Against expectations |
|---|---|---|
| Earnings per share | $1.89 | Consensus $1.97, about 4% short |
| Revenue | $201.9B | Up 12%; 0.1% under consensus |
| Operating income | $28.1B | Up 61%; a record 13.9% margin |
| Q4 revenue guide | $240–247B | Consensus about $244.7B |
| Q4 operating income guide | $28.5–33.5B |
The WSJ grouped Amazon with Intel as the two reports that deepened Friday's slide in AI-related stocks, and MarketBeat noted that a record operating margin could not stop the decline. Yet the stock opened near $232.54, down almost 5%, and recovered most of that to close down 1.4%.
The headline growth rate also understates the quarter. Prime Day moved into Q2 in most countries this year, and the CFO said Q3 growth would have been about four points higher without that shift.
AWS: the engine
AWS growth has accelerated for six straight quartersThis content is hosted by datawrapper.dwcdn.net, which may set its own cookies. It is not loaded until you allow it.
AWS revenue was $46.0B, up 39.3%, the fastest in nearly five years. The backlog reached $578B, more than double a year ago. Fortune 500 spending on Bedrock is up nearly 7x and token volume nearly 17x, and inference is already more than half of AWS's AI revenue. Amazon also plans to offer its Trainium chips to companies outside AWS from late 2027.
"We believe that AWS can grow north of 40% in each of 2027 and in 2028 and be a trillion-dollar revenue business in the next five to 10 years." Andy Jassy, CEO, Q3 2026 earnings call
AWS is under a quarter of sales and almost two-thirds of profitThis content is hosted by datawrapper.dwcdn.net, which may set its own cookies. It is not loaded until you allow it.
AWS earned $17.8B at a 38.7% margin: 63% of the group's operating income on 23% of its revenue. North America earned $8.7B at 7.7% and International $1.6B at 3.7%. Advertising revenue of $19.6B grew 12%, held back by the Prime Day shift, and management expects high-teens growth again in Q4. Prime Video is now profitable on its own.
The bill
Capex has outrun cash flow for three straight quartersThis content is hosted by datawrapper.dwcdn.net, which may set its own cookies. It is not loaded until you allow it.
Capital spending in the cash flow statement was $77.3B in Q3, against $42.4B of operating cash flow. Free cash flow was −$34.8B for the quarter and −$46.9B over twelve months, the third negative quarter in a row. Management still expects about $220B of 2026 cash capex and "meaningfully more" in 2027.
Debt has filled the gap: about $125B of net new borrowing over four quarters. Long-term debt is $173.1B, plus $98.8B of long-term lease obligations, against $114.2B of cash and short-term investments. 24/7 Wall St. reported that Amazon has filed for a first-ever borrowing secured by its data center equipment.
"We can fund this plan. I think it will forever change the size of Amazon. It will forever change our revenue, it will forever change our free cash flow." Andy Jassy, CEO, Q3 2026 earnings call
What the price implies
A $53B boost from non-operating "other income" in Q2 inflates trailing net income, so the 19x trailing P/E is not a fair read. On twelve-month operating income of $104.4B, taxed at Q3's rate of about 23%, core earnings are near $80B, or about 32x. On 2027 consensus EPS of $10.73 the stock trades at 22.4x, and on 2028's $14.40 at 16.7x.
The report's 11 valuation models put median fair value near $96, with Very High uncertainty. As with other heavy spenders, cash-flow models struggle when capex absorbs more than all of operating cash, so that figure says more about today's free cash flow than about what AWS is worth.
Against the other AI spenders
Amazon vs. the other AI spendersThis content is hosted by datawrapper.dwcdn.net, which may set its own cookies. It is not loaded until you allow it.
Next to Microsoft, Alphabet and Meta, Amazon has the slowest reported growth and the thinnest margin, because retail dilutes AWS. It is also the only one of the four whose capex exceeded operating cash flow over the past year. Yet at 22.4x 2027 earnings it sits between Microsoft (23.7x) and Alphabet and Meta (about 18x). The market is not discounting Amazon for spending the most.
Where the $300 comes from
A 21x multiple on 2028 consensus EPS of $14.40 gives about $300. The 2028 estimates range from about $10 to $23, so the target is a midpoint, not a promise. The Street's average target is $328 (range $250–$390). The $300 sits below it on purpose, because negative free cash flow is likely to limit the multiple until it turns.
What would change the view
- AWS growth below 35% for two straight quarters while capex keeps rising.
- A 2027 capex plan that grows faster than the AWS backlog.
- More secured borrowing, or a rising cost of debt.
- Retail margins giving back the gains of the past few years.
On the positive side, signed outside customers for Trainium and ad growth back in the high teens in Q4 would both strengthen the case. The next checkpoint is the Q4 report on February 4, 2027, when the first 2027 capex figure should arrive.
Personal opinion and analysis, not investment advice. Figures are from Amazon's Q3 2026 filing and earnings call (October 29, 2026), prior quarterly filings, and consensus estimates as of October 30, 2026; prices are the October 30 close. News cited: the WSJ, MarketBeat and 24/7 Wall St. Written with the help of AI assistants; every figure was checked against the source.