Amazon (NASDAQ:AMZN) Down 9%, Is Capex Becoming the Story?

14% Sales Growth, 128B Spend, Now What?

Amazon has fallen about 9%. While we are holders of the stock, when we look at risk to reward and current market sentiment, the setup feels less attractive than it did. With capex reaching $128 billion, the near term risks look higher than the potential reward, especially given Amazon’s share price is still elevated.

We still believe Amazon is a long term compounder and a strong long term hold. But our philosophy stays consistent: buying a great company at the right price matters. In this tape, further downside is still possible if sentiment continues to deteriorate or if the market stays focused on capex intensity and return on invested capital.

On the results, net sales came in at $213 billion, up 14% year on year.

North America sales were $127.1 billion, up 10%. International sales reached $50 billion, up 17%. AWS delivered $35.6 billion, up 24%, which was the fastest growth in 13 quarters.

The takeaway is that growth is being led by AWS, which is becoming a common pattern across many of the Mag 7 names. The cloud and infrastructure engine is doing the heavy lifting, and that’s where investors are anchoring their expectations.

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AWS Fastest Growth in 13 Quarters

By major revenue line, the year was strong across the board, with the mix continuing to shift toward higher quality revenue streams.

• Online stores: $83.0bn, up 10%
• Third-party seller services: $52.8bn, up 11% (a structurally attractive stream)
• Advertising services: $21.3bn, up 23% (the high margin engine)
• Subscription services: $13.1bn, up 14%
• AWS: $35.6bn, up 24%
• Physical stores: $5.9bn, up 5%

On profitability, operating income reached $25bn versus $21bn last year, with operating margin around 12%.

Operating cash flow was $54bn, while capex reached $38bn. The key point is that Amazon is still in an expansion phase, and it continues to build out at a very high rate.

That expansion spend is pressuring free cash flow, and it’s a major driver of the market’s re rating. When cash flows are being absorbed by an aggressive build out, investors start to demand clearer evidence of returns and payback, especially when valuation is still elevated.

What Amazon is doing strategically

Amazon’s custom AI silicon stack is becoming a meaningful story in its own right. Trainium and Graviton now have a combined annual revenue run rate of over $10bn, growing at triple digit % year on year.

Trainium2 is described as “fully subscribed,” with 1.4 million chips landed. It powers the majority of inference on Amazon Bedrock, which is used by 100,000+ companies.

Trainium2 also underpins Project Rainier, described as the world’s largest operational AI compute cluster. More than 500,000 Trainium2 chips are reportedly being used by Anthropic to train Claude.

Trainium3 is already in production workloads, and management suggests “nearly all” supply is expected to be committed by mid 2026.

Looking ahead, Trainium4 is expected to start delivering in 2027, with major claimed improvements versus Trainium3 across FP4 compute, memory bandwidth, and HBM capacity.

The investor’s takeaway for AMZN

While we are bullish on Amazon’s business long term, we do not think the price is right to add to the position here. For now, it’s a hold. Sentiment is still shifting, and cash flows are constrained by the current capex intensity, which keeps near term risk elevated. The right move is to keep Amazon on the watchlist, stay patient, and look for a cleaner setup where valuation and sentiment provide a better entry point.