Is Amazon.com, Inc. (AMZN.US) undervalued? The "three drivers" of cloud, self-developed chips, and Siasun Robot & Automation are opening up new growth spaces.

Note that as an undoubtedly excellent company, Amazon.com, Inc. (AMZN.US) currently seems to be undervalued by the market - over the past year, the company's stock performance has lagged behind the S&P 500 index. In the view of analyst Jetstream Research, the current valuation level indeed provides a good opportunity for long-term investors to enter. The analyst believes that Amazon.com, Inc.'s growth narrative combines strong revenue growth with expanded operating cash flow profit margins. Particularly, AWS and advertising business - the two strongest growth segments of Amazon.com, Inc. - are driving the company to increase overall revenue growth speed. What's more, the profit margins of these two businesses are much higher than its core e-commerce business, and as these businesses continue to grow, the operating cash flow profit margin is also rising. In addition, Amazon.com, Inc.'s investments in self-developed chips and Siasun Robot & Automation technology are expected to boost profit margins in the long term and potentially exceed revenue growth speed for the company's operating cash flow. At the same time, Amazon.com, Inc.'s stock price is at historically low levels of stock price/operating cash flow ratio, providing a rare opportunity for long-term investors to buy into one of the world's largest and highest quality companies at a discount. Based on this, the analyst gives Amazon.com, Inc. a "strong buy" rating. Revenue Composition and Operating Profit Margin of Amazon.com, Inc. Jetstream Research points out that Amazon.com, Inc. divides its huge revenue into three main categories: North America, international, and AWS cloud services. In the past twelve months, the company achieved revenues of $743 billion (a 14% increase year-on-year), with 59% coming from North America, 23% from international, and 18% from AWS. Although AWS only accounts for 18% of revenue, it contributes about 56% of operating profit; this is because AWS's operating profit margin is much higher than North America (only about 7%) and international (only about 3%). Over time, the growth of AWS has raised Amazon.com, Inc.'s overall operating profit margin from less than 5% ten years ago to over 11% today. The analyst predicts that with continued growth of AWS, Amazon.com, Inc.'s operating profit margin is likely to further expand in the future. Amazon.com, Inc. further breaks down sales into seven segments to more clearly demonstrate the driving role of each business in overall growth. Advertising and AWS are the fastest growing segments, with growth rates far exceeding 20% year-on-year. Even the largest segment - online stores and third-party seller services - maintains a very healthy low double-digit growth rate. It is noteworthy that the fastest growing segments of Amazon.com, Inc. are also its highest margin segments. Therefore, as advertising and AWS continue to outperform other segments, they will gradually raise Amazon.com, Inc.'s overall operating profit margin. Given this, investors should closely monitor the growth rates of these two segments, as they contribute the most to Amazon.com, Inc.'s overall profitability. Self-developed Chips Accelerate AWS Growth Like other large-scale cloud service providers, Amazon.com, Inc. has been developing self-developed chips to reduce dependence on NVIDIA Corporation (NVDA.US). This provides AWS customers with more cost-effective computational resources and has accelerated revenue growth in this segment over the past few quarters. CEO Andy Jassy described this in the first quarter earnings call for 2026, stating that in terms of the cost-effectiveness of their self-developed chips, he said, "Our Trainium2 chip is about 30% more cost-effective than similar GPUs and is currently almost sold out. The Trainium3 chip, which started shipping in 2026, is about 30-40% more cost-effective than Trainium2, and is almost fully booked; and Trainium4, to be widely available in about 18 months, has also been significantly locked in." This excellent cost-effectiveness is driving high demand in the market for Amazon.com, Inc.'s self-developed chips. Jassy made the following statement regarding the revenue growth of the chip business: "We achieved nearly 40% sequential growth in the first quarter, with an annualized revenue run rate now exceeding $20 billion, and year-over-year growth in triple-digit percentage. However, this to some extent masks the true scale of the business." "If our chip business were an independent company and sold chips produced this year to AWS and third parties like other leading chip companies, our annual revenue run rate would reach $50 billion. We estimate that our self-developed chip business has become one of the top three data center chip businesses in the world." From a global perspective, AWS's total annual revenue run rate is $150 billion, so this $20 billion chip revenue run rate (with triple-digit percentage growth) accounts for about 13% of the total. Self-developed chips are rapidly growing into an important part of AWS's overall revenue and are significantly boosting revenue growth in this segment. Jassy is also considering selling self-developed chips directly to other companies, rather than just through AWS for exclusive leasing. As he mentioned in the earnings call, this will bring the company's chip business annual revenue run rate to $50 billion (and still rapidly growing). Therefore, if Amazon.com, Inc. decides to move in this direction, this will be another revenue growth opportunity for the company. Self-developed chips not only save costs for AWS customers but also reduce costs and increase efficiency for Amazon.com, Inc. itself. By designing their own chips, Jassy expects that as more self-developed chips are deployed in their data centers, the company will save a significant amount of capital and operational expenses: "At a certain scale, we expect Trainium to save us billions of dollars in capital expenditures each year, and in terms of inference, provide a few hundred basis points of operating profit margin advantage over relying on other chips." This is a positive signal for the widely concerned AI infrastructure cost issue. Jetstream Research believes that investors should continue to track AWS's operating profit margin to validate whether self-developed chips are indeed saving operating costs as described by Jassy. Over the past five years, AWS's operating profit margin has expanded from 29% in 2021 to now 35%, showing a positive trend. However, this margin peaked at 37% in 2025, indicating a 2% decline in the past year. "Some fluctuation is expected, but ideally, this metric should show an upward trend over the long term. Therefore, investors should keep a close eye on this metric," states Jetstream Research. AI and Siasun Robot & Automation Technology Benefit Other Business Segments of Amazon.com, Inc. Amazon.com, Inc.'s investments in AI not only benefit AWS but also have a positive impact on other businesses. The advertising segment is a prime example - its revenue growth has increased from the high double digits year-on-year a year ago to levels in the twenties. AI also enables Amazon.com, Inc. to provide customers with more accurate product recommendations, driving e-commerce sales growth. Data released by Amazon.com, Inc. shows that customers using its AI assistant "Rufus" (recently renamed "Alexa for Shopping") have a purchase conversion rate more than 60% higher than customers using traditional search. The ability to make precise recommendations to specific customers from over 300 million products on its platform is a significant competitive advantage for Amazon.com, Inc. and is boosting revenue growth in its online store from high single digits to low double digits. Some of Amazon.com, Inc.'s most valuable AI applications are not consumer-facing. The company uses AI to optimize internal operations, such as predicting consumer demand for different products to optimize inventory forecasting or planning more efficient delivery routes to shorten delivery times. This ultimately allows Amazon.com, Inc. to deliver more products at lower costs and higher efficiency. Given the company's scale, this forms a strong competitive barrier. Amazon.com, Inc. has also made large-scale investments in Siasun Robot & Automation technology, further enhancing company efficiency. Amazon.com, Inc. has self-developed Siasun Robot & Automation and deployed over one million Siasun Robot & Automation units throughout its entire operational network. As a reference, Amazon.com, Inc. currently has around 1.6 million employees, and in the future, the number of Siasun Robot & Automation employees may even exceed that of humans. These Siasun Robot & Automation units handle tasks such as sorting inventory, packaging, and other repetitive tasks in fulfillment centers. Furthermore, Amazon.com, Inc. uses its AWS infrastructure to store and process data from the cameras and sensors of these Siasun Robot & Automation units. Therefore, the company's investment in self-developed chips not only improves cost-effectiveness for AWS customers but also reduces internal operating expenses for Amazon.com, Inc., providing room for further expansion of its profit margins in the future. It is evident that AI has significant benefits for all business segments of Amazon.com, Inc. Whether providing more cost-effective computing power to AWS customers, delivering more targeted advertising and product recommendations, or optimizing internal operations, Amazon.com, Inc.'s investments in AI infrastructure are driving revenue growth and expanding operating profit margins. Healthy Balance Sheet, Manageable Long-term Debt Amazon.com, Inc.'s aggressive investment in AI infrastructure has nearly squeezed free cash flow to zero. Although operating cash flow increased by 30% year-on-year in the latest quarter (exceeding revenue growth), free cash flow decreased by about 95% year-on-year due to significant capital expenditures. To raise investment funds, Amazon.com, Inc. has conducted debt financing: as of the latest quarter, it has $119 billion in long-term debt on its balance sheet. Jetstream Research states that while this figure may seem large at first glance, considering Amazon.com, Inc.'s scale, it is still manageable. In relation to its $442 billion in shareholder equity, Amazon.com, Inc.'s long-term debt-to-equity ratio is only 0.27. In terms of short-term debt-paying ability, its current assets are $255 billion, current liabilities are $217 billion, and the current ratio is 1.17. Therefore, overall, Amazon.com, Inc. is in a good position to meet short-term liabilities and fulfill long-term debt. It is also worth noting that from the perspective of operating cash flow, Amazon.com, Inc.'s profit potential is increasing. As mentioned earlier, Amazon.com, Inc.'s operating cash flow increased by 30% year-on-year to $149 billion in the past twelve months, outpacing the 14% revenue growth over the same period. Given its already substantial base, such growth is significant. Therefore, Amazon.com, Inc.'s financial condition is likely to become more robust in the future in terms of servicing debt and supporting growth. Revenue and Operating Cash Flow Forecast (2026-2031) As mentioned earlier, several revenue segments of Amazon.com, Inc. are showing accelerated revenue growth; however, for caution, Jetstream Research has modeled a slight slowdown in revenue growth for the coming years. Advertising and AWS are expected to remain the fastest-growing segments (with growth rates approaching 20% to slightly over 20%), while other segments will see mid to high single-digit growth (excluding physical store segments, which historically only achieved mid-single-digit growth). By forecasting revenue for each segment over the next five years and summing them, the following results are obtained: Regarding operating cash flow, Amazon.com, Inc. has been steadily increasing its operating cash flow profit margin over the past ten years: Fiscal Year 2016: $17 billion operating cash flow / $136 billion revenue = 13% operating cash flow profit margin 2026 (past twelve months): $149 billion operating cash flow / $743 billion revenue = 20% operating cash flow profit margin That is to say, Amazon.com, Inc. has raised its operating cash flow profit margin by about 7 percentage points over the past decade. If Amazon.com, Inc. can continue to expand its profit margin at a similar rate over the next five years, then by 2031, its operating cash flow profit margin could reasonably reach 24%. Combining this with the revenue estimate mentioned above, the following results are obtained: $1.273 trillion revenue 0.24 = $306 billion operating cash flow Finally, using a 20x price/operating cash flow multiple (lower than its median of 25x over the past ten years) and calculating based on 113.1 billion outstanding shares (assuming diluted by about 1% each year), the estimated valuation for 2031 is: $306 billion operating cash flow 20 = $6.12 trillion market cap $6.12 trillion market cap / 113.1 billion shares = $541 per share From the current price of around $250 per share, the above results would provide investors with a compound annual growth rate (CAGR) of about 17% from now until 2031. And this is based on relatively conservative revenue and operating cash flow forecasts. If Amazon.com, Inc.'s growth slightly exceeds the above forecasts and reaches $541 per share by 2030 instead of 2031, then investors would achieve a CAGR of about 21% during that period. "Therefore, Amazon.com, Inc.'s stock is very likely to achieve a near 20% to slightly over 20% annualized return in the next four to five years," states Jetstream Research. Risk Reminder: Concentration of Revenue from Anthropic and OpenAI Despite the bullish outlook for Amazon.com, Inc., Jetstream Research reminds investors of a key risk to watch out for: AWS's growth is increasingly dependent on just two companies, Anthropic and OpenAI. These two companies are consuming large amounts of cash, meaning their ability to actually fulfill their spending commitments is far from certain. This raises the question: what will AWS's growth look like with and without Anthropic and OpenAI? Jetstream Research analyzes this through examining the backlog orders as of the first quarter of 2026: as of the end of the first quarter of 2026, AWS's backlog orders amounted to $364 billion, a 93% increase year-on-year. Additionally, AWS has spending commitments from Anthropic totaling $100 billion, which CEO Andy Jassy explicitly stated is not included in the current $364 billion backlog orders. This means that when combined, AWS has already locked in about $464 billion in spending commitments. However, Jassy did not specify how much of the $364 billion backlog orders come from OpenAI. It is known that OpenAI's spending commitments to AWS total $138 billion; if it is assumed that this amount is already included in AWS's $364 billion backlog orders, then about 38% of the current backlog orders come from OpenAI alone. If Anthropic is also included (bringing AWS's total backlog orders to $464 billion), it can be concluded that about half of AWS's total backlog comes from Anthropic and OpenAI. At the same time last year, AWS's backlog orders were $189 billion; if Anthropic and OpenAI are excluded, Jetstream Research estimates that AWS's current backlog orders might be $226 billion, a 20% year-on-year increase. While this is far from the explosive growth of 93% seen when including OpenAI, for such a large business, it is still a healthy growth rate. This indicates that AWS's highly diversified customer base continues to increase spending. The analyst examines AWS's revenue growth over the past year and the year before (i.e., before the rapid increase in spending commitments from Anthropic and OpenAI) to assess this risk. As shown in the chart below, AWS revenue growth was at around 20% in 2024 and 2025, but has accelerated to over 20% in the past three quarters: "Although Amazon.com, Inc. has not detailed how much of AWS's current revenue comes from Anthropic and OpenAI versus other customers, Jassy mentioned that 'AWS's AI revenue run rate has exceeded $15 billion' - roughly equivalent to about 10% of AWS's total $150 billion revenue run rate, and most likely focused on Anthropic and OpenAI. Therefore, it is reasonable to assume that these two companies contribute about 10% of AWS's total current revenue. As the spending growth of these companies surpasses that of AWS's diversified customer base, it is expected that this contribution will gradually increase in the future," Jetstream Research states. In the latest quarter, AWS achieved revenue of $38 billion, a 28% year-on-year increase. If about 10% of this revenue comes from Anthropic and OpenAI, then approximately $4 billion comes from these two companies. This can be used to estimate how AWS's growth would look without these two companies, as follows: First Quarter of 2025: $29 billion (a 17% year-on-year increase) First Quarter of 2026 (excluding Anthropic and OpenAI): $34 billion (a 17% year-on-year increase) First Quarter of 2026 (including Anthropic and OpenAI): $38 billion (a 28% year-on-year increase) "It can be seen that AWS's revenue growth from a highly diversified customer base maintains close to a 20% level, while the addition of revenue from Anthropic and OpenAI further pushes this growth to just under a 30% level. Therefore, even for such a large-scale business, AWS's highly diversified customer base continues to drive healthy revenue growth." Jetstream Research points out that a key consideration for the future is that as Anthropic and OpenAI increase spending, their share of AWS revenue will continue to rise. These two companies already account for half of AWS's total backlog orders, so their share of total revenue at AWS could easily expand to 30-40% or even higher in the next three to five years. This has profound implications for Amazon.com, Inc.'s overall business, as the company derives nearly 60% of its operating profit from AWS. If 30-40% of this 60% revenue comes from Anthropic and OpenAI alone, these two companies could potentially contribute about 20-25% of Amazon.com, Inc.'s total operating profit - a very serious risk of customer concentration. "Of course, there is no guarantee that either of these two companies can actually fulfill these spending commitments. Both companies are currently cash flow negative: Anthropic is expected to become profitable in 2028, while OpenAI is not projected to break even until 2030. If either company decides to reduce spending targets, AWS revenue growth will slow down accordingly," Jetstream Research states. Therefore, investors should continue to monitor this situation, paying particular attention to the size of AWS's backlog, the mention of 'AWS's AI revenue run rate' (as a proxy indicator of Anthropic and OpenAI's contributions), and updates on the profitability (or loss) of Anthropic and OpenAI. If the share of Anthropic and OpenAI in AWS's total revenue exceeds 40% yet they are still not profitable, this would be a dangerous signal. At that point, any issues arising in either company would result in headwinds to AWS revenue growth and consequently drag down Amazon.com, Inc.'s overall operating cash flow growth.