Is Amazon Still a Buy After Its AI and Cloud Expansion?

In conclusion, Amazon remains a compelling buy for investors with a multi-year horizon, provided they accept the inherent risks of high-growth tech stocks. The key will be monitoring AWS's execution, AI adoption rates, and the company's ability to convert its capital investments into sustainable cash flows.

Amazon's recent surge in AI and cloud computing investments has positioned it as a dominant force in the tech sector, but the question remains: Is the stock still a compelling buy amid its aggressive growth bets? With a stock price of $230.74 as of November 26, 2025, and a trailing twelve months (TTM) price-to-earnings (P/E) ratio of 31.68, investors are grappling with whether the company's valuation reflects its long-term potential or overstates its current fundamentals. This analysis explores Amazon's financial trajectory, valuation realism through discounted cash flow (DCF) models, and the contrasting narratives of bulls and bears to determine its strategic appeal for long-term investors.

Financial Performance: AI and Cloud as Growth Engines

Amazon's third-quarter 2025 results underscore its dominance in cloud computing and AI. AWS revenue jumped 20% year-over-year to $33.0 billion, with operating income reaching $11.4 billion. This growth is fueled by rising demand for AI infrastructure, including custom chips like Trainium2, which saw a 150% quarter-over-quarter increase in usage. The company's capital expenditures for 2025 are projected at $125 billion, with an additional $50 billion earmarked for AI and supercomputing capacity for U.S. government customers starting in 2026. These investments align with broader trends in AI adoption, particularly in sectors like cybersecurity and drug discovery, where AWS is expanding its footprint.

Amazon's earnings per share (EPS) also reflect robust performance. For Q3 2025, EPS hit $1.95, a 36.36% year-over-year increase, while TTM EPS reached $7.08, up 51.61%. However, free cash flow for Q3 2025 was $10.6 billion, a decline from the TTM FCF of $14.8 billion, driven by heavy capital expenditures. This raises questions about short-term liquidity but highlights the trade-off between reinvestment for growth and immediate returns to shareholders.

Valuation Realism: DCF Models and P/E Ratios

Valuation models paint a mixed picture of Amazon's intrinsic value. A Two-Stage Free Cash Flow to Equity model estimates an intrinsic value of $294.27 per share, suggesting the stock is trading at a 15.6% discount. Conversely, a DCF model using a 10% discount rate and 3% terminal growth rate yields a lower intrinsic value of $71 per share, implying the stock is overvalued by 18%. Another DCF model, averaging DCF and relative valuations, estimates $187.24 per share, while the current price of $230.74 indicates an 18% overvaluation. These divergent results stem from varying assumptions about growth rates, discount rates, and terminal value estimates, underscoring the inherent uncertainty in valuing a high-growth company like Amazon.

The P/E ratio further complicates the analysis. Amazon's TTM P/E of 31.68 is in line with historical averages for tech stocks but higher than peers like Microsoft and Alphabet. A forward P/E of 28.57 suggests the market expects earnings growth to justify the current valuation. However, with FCF projections peaking at $139.4 billion by 2029, bulls argue that the company's long-term cash flow potential could validate its premium valuation.

Bull vs. Bear Narratives: Risks and Rewards

Bulls highlight Amazon's leadership in AI and cloud computing as a catalyst for sustained growth. The company's custom silicon, AI-powered tools like Rufus, and strategic partnerships with government agencies position it to capture a significant share of the AI infrastructure market. Additionally, AWS's robust backlog of over $200 billion in infrastructure deals provides a tailwind for future revenue. Bulls also point to the potential for AI-driven efficiency gains across Amazon's retail and logistics operations, which could boost margins and free cash flow.

Bears, however, caution against overpaying for growth. The heavy capital expenditures required to maintain AWS's competitive edge-such as the $50 billion AI investment for government customers-could strain cash flow in the short term. Moreover, competition from Google and Oracle in the AI cloud market remains intense, and any missteps in execution could erode AWS's market share. The current P/E ratio and DCF estimates also suggest the stock may be overvalued if growth slows or if AI adoption fails to meet expectations.

Strategic Outlook for Long-Term Investors

For long-term investors, Amazon's valuation realism hinges on its ability to sustain AI and cloud growth while balancing reinvestment with shareholder returns. The company's aggressive capital expenditures and R&D spending are bets on the future, but they require patience to materialize. Investors who believe in the long-term trajectory of AI and cloud computing-and Amazon's ability to dominate these markets-may find the current valuation, despite its volatility, attractive. However, those wary of overvaluation or macroeconomic risks should approach with caution.