Key Points
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Amazon is a far more profitable business today than it was at the time of its stock split in 2022.
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Demand for cloud services is fueling strong growth in its cash flow, which is now $148 billion on a trailing 12-month basis.
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The stock trades at a significantly lower multiple of cash flow, despite growth in its cloud business.
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Shares of Amazon (NASDAQ: AMZN) have nearly doubled since the company’s 20-for-1 stock split in 2022. The split made the share price more affordable for more investors, but it wasn’t the reason for the stock’s climb. Amazon made its retail business more efficient, boosted margins, and continued to grow its cloud business. The more important point for investors today isn’t what the stock has already done, but where it’s headed next.
The clearest reason the stock looks like an even better buy now is Amazon’s rapidly expanding AI infrastructure capabilities. Operating cash flow has climbed to record levels over the past year, giving the company more internally generated capital to fund its next leg of growth.
Amazon’s most profitable business is on fire
While the retail business has become more efficient thanks to robotics and cost-control initiatives, the main catalyst for long-term growth is Amazon Web Services (AWS). The cloud business is seeing strong revenue growth and accounts for most of Amazon’s operating profit.
Across retail, cloud, and other services, Amazon generated $148 billion in trailing 12-month operating cash flow (cash from operations). This level of cash generation is a competitive advantage in AI. Training and deploying models requires massive investment in data centers, networking, and specialized chips. Amazon’s investment in chips is already becoming a large business in its own right.
Within AWS, Amazon’s Trainium AI accelerators and Graviton central processing units (CPUs) are now generating more than $20 billion in annualized revenue. Enterprises are increasingly seeking cost-efficient compute, and custom chips can materially reduce the cost of running AI workloads at scale. Amazon says it has more than $225 billion in commitments tied to Trainium usage from major AI players, including Anthropic and OpenAI.
This momentum points to enormous upside in Amazon’s most profitable business. AWS revenue grew 28% year over year in the first quarter. On a trailing 12-month basis, this segment alone now generates $137 billion in revenue and $48 billion in operating income.
Why the stock is a better buy than in 2022
Free cash flow is down because Amazon is spending aggressively on AWS capacity — a common cash sink in this era of massive AI data center builds. That’s exactly why cash from operations (CFO) is a more useful metric for valuing the stock right now — it better reflects the business’s earning power while investment ramps up.
On a per-share basis, the stock trades at about 18 times CFO, cheaper than at the time of the 2022 stock split, when it traded at 32 times. Given Amazon’s stronger profitability, higher cash generation, and much deeper AI capabilities today, the stock looks more attractive now than it did just after the split.
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John Ballard has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
