© Scott Olson / Getty Images News via Getty Images
I keep buying Amazon (NASDAQ:AMZN | AMZN Price Prediction) every time Wall Street decides the capex bill is too high, and this quarter I am buying again. The stock closed at $233.66 on Thursday after a 4.57% single-day drop and a 6.49% weekly slide. The trigger is familiar: Andy Jassy telling shareholders Amazon plans to invest roughly $200 billion in capital expenditures in 2026. I have seen this movie in 2000, 2014, and 2022. Every time the market panicked about Amazon spending too much, the compounding on the other side rewarded patience.
The Thesis in Plain English
Amazon is the largest cloud, advertising, and custom-silicon business on earth wearing a retail wrapper, with a retail arm attached. AWS grew 28% year over year in Q1 2026, its fastest growth in 15 quarters, at a 37.7% operating margin. Advertising crossed $70 billion in trailing revenue. The chips business (Graviton, Trainium, Nitro) is at a $20 billion annual run rate growing triple digits. That is what I am buying.
Three Reasons the Panic Reads as a Gift
First, the backlog. AWS carried a $364 billion backlog at the end of Q1, and that figure excludes the over $100 billion Anthropic commitment signed after quarter close. Trainium alone sits on over $225 billion in revenue commitments. This capex is backed by contracted demand.
Second, the math of prior cycles. In FY 2022 free cash flow ran negative $16.9 billion as capex hit $63.6 billion. Within two years, operating cash flow reached $139.5 billion and net income climbed to $77.7 billion. Jassy stated it directly: “We have been through this cycle with the first big AWS growth wave, and we like the results.”
Third, valuation and quality. Trailing P/E of 30, forward P/E of 29, ROE of 24.3%, interest coverage of 35x, and net debt/EBITDA of 0.45. Analysts carry a $313.13 average target with 62 buy or strong-buy ratings and zero sell ratings.
Why Not Microsoft or Alphabet
Readers will ask why I keep passing on Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). Both are fine businesses. Amazon offers something they cannot match right now: AWS growing 28% at a 37.7% operating margin, layered onto retail unit growth of 15%, the highest since COVID. Alphabet just took its own capex-panic hit after raising infrastructure spending again, missing EPS forecasts despite a revenue beat. I want the hyperscaler where the ad business, the retail flywheel, and custom silicon all subsidize the compute bill.
The Risk I Refuse to Wave Away
Trailing free cash flow collapsed 95% to $1.2 billion. Long-term debt climbed to $119.1 billion from $65.6 billion year over year. Interest expense rose to $800 million. A recession or a Trainium demand miss would sting. My answer: Jassy told analysts AWS capex assets carry 30-plus year useful lives for data centers and five to six years for chips, and a substantial portion already carries customer commitments. That is prepaid demand.
Why the Buy Button Stays Active
The prediction market currently prices a 89% probability that 2026 capex tops $200 billion and a 94% probability Amazon beats Q2 earnings on July 30. History rhymes on this stock: fear the spending, miss the compounding. I am not making that mistake a fourth time.
Contact [email protected] for any questions or corrections.
