AMZN Analysis: AWS Acceleration and Ad Revenue Surge Make the 19% Pullback Worth a Closer Look

Amazon trades at a trailing PE of 29.33 and a price-to-book ratio of 6.01, both above broad market averages. The EV/EBITDA multiple of 54.3 looks elevated at first glance, particularly against the S&P 500 median of roughly 15x. But Amazon has never been a traditional value stock, and the relevant comparison is against its own history and the growth it delivers.

At $210.00, the stock is priced at approximately 29.3x its 2025 earnings of $7.16 per share. Forward analyst estimates project accelerating EPS through 2028, with consensus figures of roughly $3.87 in Q1 2028, $4.37 in Q2, $4.74 in Q3, and $5.89 in Q4 — implying an annualised run-rate above $18.00 by late 2028. If those estimates hold, today's price represents roughly 11-12x 2028 earnings, a sharp discount to where mega-cap tech typically trades.

The free cash flow yield of 0.6% is thin, but this reflects Amazon's deliberate capital allocation strategy: the company is spending 18.5% of revenue on capital expenditure, primarily building out AWS data centres, fulfilment infrastructure, and AI compute capacity. These are growth investments, not maintenance capex. Investors paying 29x earnings today are effectively funding infrastructure that should generate returns for the next decade.

The debt-to-equity ratio of 0.37 and current ratio of 1.05 suggest Amazon is not over-leveraged, despite the massive capex programme. The balance sheet provides ample room to continue investing without jeopardising financial stability.

Amazon's 2025 earnings trajectory tells a story of compounding operational improvement. Revenue grew from $155.7 billion in Q1 to $167.7 billion in Q2, $180.2 billion in Q3, and $213.4 billion in Q4, bringing the full-year total to approximately $716.9 billion. Net income followed a similar curve: $17.1 billion, $18.2 billion, $21.2 billion, and $21.2 billion across the four quarters, totalling $77.7 billion for the year.

Diluted EPS rose from $1.59 in Q1 to $1.68 in Q2, then $1.95 in both Q3 and Q4. The Q4 figure matched Q3 despite typically higher fulfilment costs during the holiday quarter, underscoring the company's improved cost discipline.

Gross margins remained robust throughout the year, with Q4 delivering 48.5% against Q3's 50.8%. The Q4 compression is seasonal — holiday-quarter product mix and promotional pricing naturally weigh on gross margins — but 48.5% for a company with Amazon's revenue scale is remarkable. Operating margin of 11.7% in Q4 continues the multi-year expansion trend that began when Andy Jassy's efficiency initiatives took hold in 2023.

The standout performer within the earnings mix is AWS, which delivered 24% year-over-year revenue growth in Q4. After a period of optimisation-driven deceleration in 2023, AWS has decisively re-accelerated as enterprise AI workloads drive new consumption. Advertising services, at $21.3 billion in Q4 revenue, is now a material contributor to both the top line and margins. Ad revenue carries estimated margins north of 50%, making each incremental dollar of ad revenue roughly twice as profitable as a dollar of e-commerce revenue.

Amazon's balance sheet reflects a company in aggressive investment mode. Capital expenditure consumed 18.5% of revenue in 2025, a significant allocation driven primarily by AWS infrastructure buildout and AI compute capacity. This level of spending suppresses free cash flow in the near term — hence the 0.6% FCF yield — but creates durable competitive advantages.

The debt-to-equity ratio of 0.37 is conservative for a company of Amazon's scale and cash-generating ability. Many technology peers carry higher leverage. The current ratio of 1.05 indicates adequate short-term liquidity, though it leaves little margin for error. Amazon manages this tightly by design, relying on its negative cash conversion cycle: the company collects from customers before it pays suppliers, generating substantial working capital benefits.

Return on equity of 5.2% appears low, but this metric is depressed by Amazon's large and growing equity base. The denominator has expanded rapidly as retained earnings accumulate. On a return-on-invested-capital basis, Amazon's economics are considerably more attractive, particularly when isolating the AWS and advertising segments.

Full-year 2025 net income of $77.7 billion on revenue of $716.9 billion represents a net margin of approximately 10.8%, a level that would have seemed unreachable five years ago when Amazon routinely posted net margins below 5%. The margin expansion reflects the growing contribution of AWS and advertising — both structurally higher-margin businesses — combined with ongoing efficiency improvements in the retail and fulfilment operations.

Wall Street consensus estimates project continued earnings growth through 2028. The forward EPS trajectory — $3.87 in Q1 2028, $4.37 in Q2, $4.74 in Q3, and $5.89 in Q4 — implies roughly 25-30% annualised EPS growth from current levels. If Amazon delivers on these estimates, the stock's current valuation looks increasingly reasonable.

The next earnings report, due April 30, 2026, will be closely watched for several signals. Investors will want to see whether AWS growth sustains above 20%, whether advertising revenue maintains its trajectory, and whether operating margins continue to expand despite the heavy capex programme. Any guidance commentary on AI-driven demand patterns will move the stock.