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Amazon Rides on 28% AWS Growth in Q1: Buy, Sell or Hold the Stock?
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Key Takeaways
Amazon posted 28% AWS revenue growth to $37.6B, its fastest pace in 15 quarters.
AWS' strength is fueled by AI demand, custom chips and a $364B backlog expansion.
AMZN faces pressure from $200B capex plans and a sharp drop in free cash flow.
Amazon (AMZN - Free Report) closed first-quarter 2026 with a headline number that recaptured investor attention: AWS revenues expanded 28% year over year to $37.6 billion, the cloud unit's fastest growth in 15 quarters. Total net sales rose 17% to $181.5 billion, while operating income climbed to $23.9 billion from $18.4 billion in the year-ago period. North America segment sales rose 12% to $104.1 billion, and International segment sales jumped 19% to $39.8 billion. The release reignited the AI thesis, but rising capital intensity and execution risks invite caution.
AWS Reacceleration, Custom Silicon and Recent AI Announcements
The cloud unit's reacceleration is the cleanest read on enterprise AI demand. AWS’ operating income reached $14.2 billion, up from $11.5 billion. Amazon's custom-silicon business — Graviton, Trainium and Nitro — surpassed a $20 billion annual revenue run rate, growing triple-digit percentages. The company landed over 2.1 million AI chips in the trailing 12 months, more than half of them Trainium, and announced one million-plus NVIDIA GPUs beginning in 2026. Bedrock processed more tokens in the first quarter than in all prior years combined, with customer spend rising 170% sequentially. AWS backlog reached $364 billion, excluding a separate $100 billion Anthropic deal.
Through March-May 2026, Amazon stacked AI partnership and product announcements. The company secured an OpenAI commitment for roughly two gigawatts of Trainium capacity ramping in 2027, plus an up-to-five-gigawatt Trainium agreement with Anthropic alongside an additional $5 billion investment. At the April 28 "What's Next with AWS" event, AWS unveiled the Amazon Quick desktop AI assistant, expanded Amazon Connect into Decisions, Talent, Customer and Health agentic suites and launched Amazon Bedrock Managed Agents powered by OpenAI, with GPT-5.4 in limited preview and GPT-5.5 to follow. The same wave brought Codex on Amazon Bedrock for enterprise coding and Amazon Bio Discovery, an agentic application used by Memorial Sloan Kettering. Amazon also disclosed plans to invest $25 billion in Mississippi data centers and announced an agreement to acquire Globalstar.
Forward Guidance and the Capex Overhang
For second-quarter 2026, Amazon guided net sales of $194-$199 billion, implying 16-19% growth, with operating income of $20-$24 billion versus $19.2 billion a year earlier. The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.87 per share, reflecting an upward revision of 5.1% over the past 30 days.
The framework looks healthy at the top line, but cash flow is the catch. Free cash flow on a trailing 12-month basis collapsed to $1.2 billion from $25.9 billion, due to a $59.3 billion year-over-year jump in property and equipment outlays tied to AI infrastructure. First-quarter capital expenditure alone reached $43.2 billion, and Amazon has projected 2026 capex near $200 billion, sustaining elevated depreciation pressure on margins.
Shares of Amazon have gained 10.5% in the past six-month period compared with the broader Zacks Retail-Wholesale sector and the S&P 500 index’s return of 6.2% and 9.4%, respectively. Amazon's primary cloud rivals — Microsoft (MSFT - Free Report) , Oracle (ORCL - Free Report) and Alphabet (GOOGL - Free Report) -owned Google — are intensifying enterprise AI competition and aggressive infrastructure spending. Microsoft's Azure platform leverages OpenAI ties and an expanded Anthropic partnership, and Microsoft remains the largest direct AWS challenger by revenue scale. Oracle has scored marquee AI training deals, with Oracle's OCI clusters powering frontier-model labs and the Stargate alliance ramping capacity. Google leans on its proprietary TPU silicon and Vertex AI tools, while Google's Gemini lineup competes for enterprise mindshare against Bedrock-hosted offerings. Together, these dynamics suggest Amazon's cloud lead may face increasing pressure even as AWS reaccelerates.
AMZN’s 6-Month Performance
Image Source: Zacks Investment Research
AMZN is trading at a premium with a forward 12-month P/S of 3.46X compared with the Zacks Internet - Commerce industry’s 2.11X, reflecting a stretched valuation.
AMZN’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Hold AMZN for Now
Amazon's AI-driven flywheel is unmistakably accelerating, but multi-year capex commitments, slumping free cash flow and intensifying hyperscaler competition argue against chasing the stock at current premium multiples. Existing shareholders can reasonably hold AMZN to capture the AWS reacceleration, the chips’ run-rate trajectory and silicon optionality with OpenAI and Anthropic. The mix of $364 billion AWS backlog, surging Bedrock token volumes and reaccelerating top-line growth keeps the long thesis intact, yet the downward revision in near-term earnings expectations and a P/S premium leave little margin for execution missteps. Prospective investors may benefit from waiting for a pullback or a clearer payback path on AI capex later in 2026. Hold AMZN, monitor capex efficiency, and consider adding on weakness rather than at the post-print highs. Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Amazon Rides on 28% AWS Growth in Q1: Buy, Sell or Hold the Stock?
Key Takeaways
Amazon (AMZN - Free Report) closed first-quarter 2026 with a headline number that recaptured investor attention: AWS revenues expanded 28% year over year to $37.6 billion, the cloud unit's fastest growth in 15 quarters. Total net sales rose 17% to $181.5 billion, while operating income climbed to $23.9 billion from $18.4 billion in the year-ago period. North America segment sales rose 12% to $104.1 billion, and International segment sales jumped 19% to $39.8 billion. The release reignited the AI thesis, but rising capital intensity and execution risks invite caution.
AWS Reacceleration, Custom Silicon and Recent AI Announcements
The cloud unit's reacceleration is the cleanest read on enterprise AI demand. AWS’ operating income reached $14.2 billion, up from $11.5 billion. Amazon's custom-silicon business — Graviton, Trainium and Nitro — surpassed a $20 billion annual revenue run rate, growing triple-digit percentages. The company landed over 2.1 million AI chips in the trailing 12 months, more than half of them Trainium, and announced one million-plus NVIDIA GPUs beginning in 2026. Bedrock processed more tokens in the first quarter than in all prior years combined, with customer spend rising 170% sequentially. AWS backlog reached $364 billion, excluding a separate $100 billion Anthropic deal.
Through March-May 2026, Amazon stacked AI partnership and product announcements. The company secured an OpenAI commitment for roughly two gigawatts of Trainium capacity ramping in 2027, plus an up-to-five-gigawatt Trainium agreement with Anthropic alongside an additional $5 billion investment. At the April 28 "What's Next with AWS" event, AWS unveiled the Amazon Quick desktop AI assistant, expanded Amazon Connect into Decisions, Talent, Customer and Health agentic suites and launched Amazon Bedrock Managed Agents powered by OpenAI, with GPT-5.4 in limited preview and GPT-5.5 to follow. The same wave brought Codex on Amazon Bedrock for enterprise coding and Amazon Bio Discovery, an agentic application used by Memorial Sloan Kettering. Amazon also disclosed plans to invest $25 billion in Mississippi data centers and announced an agreement to acquire Globalstar.
Forward Guidance and the Capex Overhang
For second-quarter 2026, Amazon guided net sales of $194-$199 billion, implying 16-19% growth, with operating income of $20-$24 billion versus $19.2 billion a year earlier. The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.87 per share, reflecting an upward revision of 5.1% over the past 30 days.
The framework looks healthy at the top line, but cash flow is the catch. Free cash flow on a trailing 12-month basis collapsed to $1.2 billion from $25.9 billion, due to a $59.3 billion year-over-year jump in property and equipment outlays tied to AI infrastructure. First-quarter capital expenditure alone reached $43.2 billion, and Amazon has projected 2026 capex near $200 billion, sustaining elevated depreciation pressure on margins.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
Share Price Movement and Competitive Landscape
Shares of Amazon have gained 10.5% in the past six-month period compared with the broader Zacks Retail-Wholesale sector and the S&P 500 index’s return of 6.2% and 9.4%, respectively. Amazon's primary cloud rivals — Microsoft (MSFT - Free Report) , Oracle (ORCL - Free Report) and Alphabet (GOOGL - Free Report) -owned Google — are intensifying enterprise AI competition and aggressive infrastructure spending. Microsoft's Azure platform leverages OpenAI ties and an expanded Anthropic partnership, and Microsoft remains the largest direct AWS challenger by revenue scale. Oracle has scored marquee AI training deals, with Oracle's OCI clusters powering frontier-model labs and the Stargate alliance ramping capacity. Google leans on its proprietary TPU silicon and Vertex AI tools, while Google's Gemini lineup competes for enterprise mindshare against Bedrock-hosted offerings. Together, these dynamics suggest Amazon's cloud lead may face increasing pressure even as AWS reaccelerates.
AMZN’s 6-Month Performance
Image Source: Zacks Investment Research
AMZN is trading at a premium with a forward 12-month P/S of 3.46X compared with the Zacks Internet - Commerce industry’s 2.11X, reflecting a stretched valuation.
AMZN’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Hold AMZN for Now
Amazon's AI-driven flywheel is unmistakably accelerating, but multi-year capex commitments, slumping free cash flow and intensifying hyperscaler competition argue against chasing the stock at current premium multiples. Existing shareholders can reasonably hold AMZN to capture the AWS reacceleration, the chips’ run-rate trajectory and silicon optionality with OpenAI and Anthropic. The mix of $364 billion AWS backlog, surging Bedrock token volumes and reaccelerating top-line growth keeps the long thesis intact, yet the downward revision in near-term earnings expectations and a P/S premium leave little margin for execution missteps. Prospective investors may benefit from waiting for a pullback or a clearer payback path on AI capex later in 2026. Hold AMZN, monitor capex efficiency, and consider adding on weakness rather than at the post-print highs. Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.