Shares of Amazon (NASDAQ: AMZN) have nearly doubled over the past three years, lifting the company’s market capitalization to about $2.6 trillion. Can the company keep up its momentum, helping the stock rise sharply again over the next three years?
The answer arguably hinges on two things above all: whether Amazon Web Services (AWS), its cloud computing business, can keep growing at the strong clip it has demonstrated recently, and whether the enormous sums the company is pouring into artificial intelligence (AI) start paying off fast enough to justify them.
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Here’s a close look at Amazon’s underlying business, and where I think the stock could be three years from now.
The cloud business is accelerating again
Most people still think of Amazon as a giant online store. But its most profitable operation is AWS. Even more, the segment is growing at a blistering pace. AWS’s first-quarter revenue rose 28% year over year to $37.6 billion — its fastest growth in 15 quarters — reaching an annual run rate of about $150 billion.
Highlighting the segment’s impressive economics, AWS made up only about 21% of Amazon’s revenue in the quarter yet generated nearly 60% of the company’s operating income.
“It’s very unusual for a business to grow this fast on a base this large,” said Amazon CEO Andy Jassy in the company’s first-quarter earnings call when talking about AWS’s growth rate.
Much of that reacceleration ties back to AI. Amazon said AI-related revenue within AWS is now running above a $15 billion annual rate, and its order backlog stood at about $364 billion at the end of the quarter. And since the close of the quarter, the company earned a commitment of more than $100 billion from Anthropic, the AI developer Amazon has backed heavily.
The rest of the business is contributing as well. Advertising revenue grew 24% to $17.2 billion in the quarter, a high-margin operation that has quietly topped $70 billion over the past year. And the retail side is getting more profitable: North America operating income climbed to $8.3 billion from $5.8 billion a year earlier, helping lift Amazon’s overall operating margin to a record 13.1%.
What could cap — or drive — the next three years
All of that growth, however, comes at a cost. Amazon expects to spend about $200 billion on capital expenditures across the company in 2026, much of it on AI data centers and chips. And the strain this spending puts on Amazon’s business already shows. Over the past year, operating cash flow rose 30% to $148.5 billion. But trailing-12-month free cash flow fell to about $1.2 billion from $25.9 billion, as purchases of property and equipment jumped by about $59 billion. And a multibillion-dollar deal struck this month with Corning (NYSE: GLW) to supply fiber for U.S. data centers is just the latest sign that the costly build-out keeps ramping. Amazon also recently disclosed an excpected $17.5 bilion delayed-draw term loan facility.
