Why I Went Big on Amazon?

Amazon is trading at approximately 28 times its trailing core earnings. Last year the company posted about $80 billion in operating profit. After adjusting for roughly $7 billion in one-time items disclosed late in the year, that number climbs to around $87 billion. On top of that, AMZN 0.00%↑ continues to pour money into several big experimental projects, satellite internet, voice assistants, and autonomous vehicles.

These initiatives are likely losing $8 billion or more annually in total. Once you back those losses out, the underlying operating profit of the main businesses probably sits closer to $95 billion. After a realistic 20% cash tax rate, that translates to roughly $76 billion in after-tax core earnings.

Even after netting out cash and a major AI-related investment stake, the enterprise value comes to about $2.08 trillion. In simple terms, you’re getting two world-class operations, one in retail and one in cloud computing, both positioned in fast-growing markets and riding strong AI tailwinds, at a mid-20s multiple on normalized earnings. That setup has the potential to deliver solid long-term results.

The Strengthening Retail Advantage

Amazon’s online retail business has built one of the widest and fastest-widening competitive edges in the market. While many traditional advantages are coming under pressure from new technology, Amazon’s position keeps getting stronger as it scales. The company already handles more than 40% of all U.S. online shopping, and the gap to the next player is huge.

Greater sales volume lets Amazon stock products in more warehouses located nearer to customers. That proximity improves product selection, speeds up delivery, reduces miles traveled per package, and cuts down on handling. All of these improvements drive costs lower. Lower costs allow for better prices and quicker shipping, which brings in even more shoppers and orders.

The cycle feeds itself. Amazon has also moved early and aggressively into warehouse automation and robotics, which now support the majority of its worldwide shipments.Even with its dominant U.S. position, e-commerce still makes up only about 16-17% of total U.S. retail spending, and far less overseas. As more shopping shifts online and delivery gets faster, the opportunity keeps expanding. Despite heavy spending on logistics, the retail side generates strong returns on the capital it invests. Suppliers help a lot here by essentially financing part of the growth through favorable payment terms.

Between 2018 and 2025, North American retail revenue more than tripled, while the company invested heavily in facilities and equipment. After accounting for supplier support through working capital, the effective capital deployed delivered incremental returns in the mid-to-high 20% range. A big hidden gem inside retail is the advertising business, which now brings in nearly $69 billion a year and is growing around 22%.

Amazon has a unique edge because it sees not just what people buy, but what they search for, click on, and decide against. That depth of customer insight is extremely powerful for targeted ads.

The company is also starting to leverage this data advantage outside its own sites by helping advertisers reach audiences across other major platforms.

AWS: Cloud Leadership with AI Upside

In 2025, AWS generated $129 billion in revenue, up 20% from the prior year, and delivered $46 billion in operating income. Growth picked up to 24% in the final quarter, the strongest in more than three years. Its own custom chips for AI and general computing are already contributing over $10 billion annually and expanding at triple-digit rates.

The outlook is straightforward: enterprises keep moving to the cloud, and AI is creating an entirely new layer of demand for computing power and infrastructure. There’s valid worry that today’s massive buildout of data centers could eventually create oversupply.

Still, the current stock price doesn’t seem to bake in overly optimistic assumptions for AWS, especially when paired with the retail performance. There’s also a realistic path where AI needs stay so strong that AWS can keep growing in the high teens to low 20s percent range with healthy margins for years to come.

Historically, AWS has shown solid efficiency in turning capital into profit. From 2018 through 2025, operating income increased dramatically while invested capital grew substantially. Adjusting for projects still under construction, the returns on new capital look to have been in the mid-20% area.

Bottom Line

I’m not running a complex spreadsheet here because the story doesn’t require one. The market’s main worry is the jump in capital spending toward $200 billion a year. To me, the bigger opportunity lies in how effectively Amazon can put that money to work at high returns.

That potential upside feels much more likely than a sharp slowdown or major competitive threat in cloud if AI enthusiasm cools off. Overall, paying around28 times core earnings for a company with this combination of quality, proven economics, and multi-decade runway feels like a favorable setup for patient investors.

Key Drivers Going Forward

Continued improvement in retail profitability (helped by growing ad revenue) and steady expansion at AWS. In the end, time and execution should do most of the work..