Key Points
- Amazon delivered a strong first-quarter performance, with both earnings and revenue exceeding expectations.
- AWS revenue grew 28% year-on-year — the highest quarterly growth rate in nearly four years — surpassing expectations of 25.5%. Operating margins in the cloud segment improved to 38%, up from 35% in the previous quarter.
- Amazon is now among the top three players in the data centre chip market, with its semiconductor business surpassing a USD 20 billion annual run rate and maintaining triple-digit year-on-year growth.
- Applying our fair P/E of 26x, this translates into an upside potential of 29% by 2028. As such, we reiterate our BUY rating for Amazon with a target price of USD 338.
Amazon delivered a strong first-quarter performance, with both earnings and revenue exceeding expectations. Revenue grew 17% year-on-year, while operating margins reached a new high of over 13%. Net profit surged by 77%, although this is partly driven by a pre-tax gain of USD 16.8 billion from its investment in Anthropic, which accounted for more than half of total net income.
Amazon’s AI presence just got stronger
AWS revenue grew 28% year-on-year — the highest quarterly growth rate in nearly four years — surpassing expectations of 25.5%. Operating margins in the cloud segment improved to 38%, up from 35% in the previous quarter.
The AWS contract backlog now stands at USD 364 billion, representing a 93% y/y growth and 50% q/q growth, reflecting strong forward demand visibility rather than near-term revenue acceleration for cloud and AI services. These commitments likely reflect sustained enterprise demand for AI compute rather than short-term experimentation. AWS AI revenue reached an annualised run rate of USD 15 billion in the first quarter.
Notably, Amazon is now among the top three players in the data centre chip market, with its semiconductor business surpassing a USD 20 billion annual run rate and maintaining triple-digit year-on-year growth. Over the past 12 months, the company has deployed more than 2.1 million AI chips, with over half being Trainium. In addition, OpenAI has committed to utilising approximately 2 GW of Trainium computing power via AWS infrastructure, while Anthropic is expected to secure up to 5 GW of Trainium chip capacity.
Meanwhile, we expect Amazon to be the main beneficiary of OpenAI-Microsoft’s new agreement, as many enterprise clients have previously avoided OpenAI due to their reliance on specific server architectures (AWS), a barrier that now may be reduced.
The new agreement effectively removes Microsoft’s exclusivity, allowing OpenAI to serve products via AWS and Google Cloud. In fact, OpenAI announced plans to integrate with Amazon Bedrock. At the same time, the “buy vs buy” trend (where enterprises increasingly develop in-house AI agents rather than purchasing off-the-shelf solutions) is boosting demand for hyperscaler-based development platforms such as AWS Bedrock. Bedrock offers direct access to Anthropic's Claude, Meta's Llama, and several other proprietary models. Customers can bring their own models or tap Amazon's AI capabilities without locking into a single model vendor.
Figure 1: Order backlog growth grew more than CAPEX growth for the first time since 1Q 2024
Firing on All Cylinders
Other business segments also contributed positively. The core retail business grew 12% year-on-year, reflecting continued resilience in consumer demand despite a higher cost environment, with operating margins rising from 6.3% in the same period last year to 7.9%. The company reported that the number of paid items sold globally increased by 15% year-on-year, marking the fastest growth since the end of COVID-19 lockdowns.
Higher crude oil prices have begun to feed through into shipping costs, which rose by 14% year-on-year. While the longer-term impact requires further assessment, Amazon’s better-than-expected forward guidance highlights the resilience of its business in navigating external uncertainties. Measures such as increasing fuel and logistics surcharges by 3.5% for third-party sellers in the US and Canada should help mitigate rising fuel costs. Another key profit driver — advertising — also recorded strong growth of 22%. Amazon’s AI shopping assistant – Rufus’ monthly active users rose more than 115% YoY in the first quarter, with engagement grew 400% y/y, indicating early traction in AI-driven commerce use cases.
The company provided revenue guidance that exceeded expectations, although profit guidance came in slightly below forecasts, this shows continued top-line momentum, albeit with margin pressure from ongoing investment. We believe this reflects continued investment in AI infrastructure, accelerating logistics costs, and higher depreciation.
Table1 : Key financial metrics
|
Metric / Segment |
Actual |
YoY |
Consensus Estimate |
Beat / Miss |
Q2 2026 Guidance |
|
Key financials |
|||||
|
Total Revenue |
$181.5B |
+17% |
$177.3B |
Beat +$4.2B |
$194–199B +16–19% YoY; vs. $189.1B est. |
|
EPS (diluted) |
$2.78 |
+75% |
$1.64 |
Beat +70% |
— |
|
Operating Income |
$23.9B |
+30% |
~$18.9B (midpoint) |
Beat |
$20–24B vs. $22.65B est. |
|
Operating Margin |
13.1% |
+140bps |
— |
Record high |
— |
|
Net Income |
$30.3B |
+77% |
— |
Beat Incl. $16.8B Anthropic gain |
— |
|
Free Cash Flow (TTM) |
$1.2B |
-95% |
— |
Watch Capex absorption pressure |
— |
|
Business segments |
|||||
|
AWS |
$37.6B |
+28% |
$36.6B |
Beat Fastest in 15 qtrs |
— Demand strong; supply constrained |
|
Advertising |
$17.2B |
+24% |
$16.9B |
Beat |
— |
|
North America |
$104.1B |
+12% |
~$101B |
Beat |
— |
|
International |
$39.8B |
+19% (+11% ex-FX) |
— |
Beat |
— |
|
Online Stores |
$64.3B |
+12% |
$62.7B |
Beat |
— |
|
Capital expenditure |
|||||
|
Quarterly Capex (P&E) |
$44.2B |
~+67% YoY |
$43.6B (FactSet) |
Above est. Slight overshoot on spending |
— Q2 capex not separately guided |
|
Full-Year 2026 Capex |
~$200B (guidance) |
~+60% vs. 2025 |
$146.1B (prior est.) |
Far above est. $54B surprise; sent stock -3% AH |
~$200B maintained AI infra, data centers, Leo satellites |
|
Capex / Op. Cash Flow |
$147.3B TTM capex vs. $148.5B TTM OCF |
— |
— |
Watch Near full absorption of cash generation |
— |
|
Source: Company Announcement, iFAST compilations. Data as of 30 April 2026. |
|||||
CAPEX surged as expected, pressuring near-term cash flow
On the other hand, capital expenditure for the quarter reached USD 44 billion, exceeding expectations. Free cash flow over the past twelve months declined sharply to USD 1.2 billion — a 95% year-on-year decrease — primarily due to heavy AI investments, as well as spending on space-related initiatives. Amazon continues to expand its satellite constellation, which is expected to comprise approximately 7,700 satellites, of which around 270 are currently operational.
Reiterating BUY on Amazon
Overall, Amazon delivered a very strong quarter, with the primary concern centred on elevated CAPEX and its impact on cash flow visibility. Visibility on near-term CAPEX moderation remains limited, as the company is likely to continue investing heavily in AI and space exploration. However, maintaining its capital expenditure guidance at USD 200 billion for the year, rather than raising it, may help alleviate some concerns.
Our conviction in Amazon remains underpinned by its strong positioning in AI, particularly given its leading market share in cloud computing and its deep integration with key partners such as Anthropic (we estimate that approximately 60% of Anthropic’s computing needs is supported by AWS). AWS edge lies not just raw compute, but in its integrated ecosystem its custom Trainium and Inferentia chips, infrastructure and application layers like Bedrock and SageMaker for production scenarios.
In addition, the revised agreement between OpenAI and Microsoft could further benefit Amazon, as Microsoft is set to lose its status as the sole cloud provider for certain workloads. This was followed by an announcement that AWS will make OpenAI models available through its Amazon Bedrock platform for building AI agents and applications.
With that, we expect earnings to grow by 29% in FY2026, followed by 17% and 24% in FY2027 and FY2028, driven by continued AWS margin expansion and operating leverage in retail and advertising.
Applying our fair P/E of 26x, this translates into an upside potential of 29% by 2028. As such, we reiterate our BUY rating for Amazon with a target price of USD 338.
Table 2: Valuation table
|
2025Y |
2026Y |
2027Y |
2028Y |
|
|
P/E |
36.36 |
29.2 |
25.0 |
20.2 |
|
Earnings |
6.95 |
9 |
10.5 |
13 |
|
Earnings Growth |
24.29% |
29% |
17% |
24% |
|
Sales (bil USD) |
717 |
810 |
907 |
971 |
|
Sales Growth |
12.4 |
13 |
12 |
7 |
|
Fair PE |
26 |
|||
|
Target Price |
268 |
338 |
||
|
Upside Potential |
26% |
|||
|
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 29 April 2026. |
||||
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