AWS grew 28% to $38B in Q1, and a 2027 free cash flow inflection should start converting Amazon's $364B enterprise backlog into high-margin revenue.
Amazon trades at 29x forward earnings versus Microsoft while owning custom silicon that reduces NVIDIA dependence and protects AWS margins as AI workloads scale.
Jassy's $200B capex collapsed TTM free cash flow 95%, but Amazon's record $140B operating cash flow funds the entire AI build without outside financing.
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I keep hitting the buy button on Amazon (NASDAQ:AMZN) because I am watching a capital cycle turn in real time, and I want my shares sitting there when the cash flow catches up to the story.
My thesis is simple. Andy Jassy is spending roughly $200 billion in 2026 capex to build the plumbing for the AI economy, and Amazon is one of the very few companies on earth that can fund that build out of operating cash flow. Once those data centers move from construction to active billing, the free cash flow J-curve projected to inflect in the first half of 2027 starts converting AWS's $364 billion enterprise backlog into recognized, high-margin revenue. That is the moment I am buying toward.
First, AWS is re-accelerating on a base most companies would kill for. Q1 2026 revenue hit $37.59 billion, up 28% year over year, the fastest growth in 15 quarters, at a 37.7% operating margin. Jassy called out "some of the biggest inflections of our lifetime" and pointed to landmark compute commitments: OpenAI signing on for roughly 2 GW of Trainium capacity beginning 2027 and Anthropic up to 5 GW. That is contracted demand already on the books.
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Second, advertising is quietly building a second Google. Ads revenue crossed over $70 billion in TTM revenue, growing 24% year over year in Q1. Retail is accelerating too: unit growth reached 15%, the highest since the tail end of covid lockdowns.
Third, the custom chips business topped a $20 billion annual revenue run rate, growing triple digits year over year. Amazon owns its silicon stack while renting NVIDIA's (NASDAQ:NVDA), which protects the AWS margin as AI workloads scale.
The obvious alternatives are Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). I own both. My incremental dollar keeps landing on Amazon because I am paying a trailing P/E of 30 and a forward P/E of 29 for a business generating a 24.3% return on equity with three separate businesses compounding above 20%. The 62 buy ratings against zero sell ratings from Wall Street tell me the crowd sees the same setup.
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