--- ticker: "AMZN" company: "Amazon.com, Inc." date: "2026-10-26" view: "Strong Buy" fair_value: 327.31 price: 248.47 price_source: "last regular-session trade $248.47 at 2026-10-26 16:16:15 UTC; official close 2026-10-23 $248.00 (sip-list-exchange-close)" price_time: "2026-10-26T16:16:15Z" price_vs_fair_value: "-24.1%" bear: 120.41 bull: 558.37 exit_price: 505.48 p_price_justified: "over 50%" restated: "2026-10-26" method: "case-spread-2026-10-24" original_fair_value: 327 original_view: "Buy" page: "https://alpha.dming.si/research/2026-10-26-amzn-6" --- # AMZN · Amazon.com, Inc. · Strong Buy Research report as of 2026-10-26, unblinded. Page: https://alpha.dming.si/research/2026-10-26-amzn-6 We value AMZN at $327 a share. The report's $248.47 price (Oct 26, 2026) was 24% below fair value: Strong Buy. _Restated Oct 26, 2026 (method case-spread-2026-10-24); the report's original value was $327, Buy._ | Lens | Range | Marks | | --- | --- | --- | | Our report | $120 to $558 | fair $327; original $327 | | Our simulation | $159 to $646 | median $318 | | Street targets (32) | $300 to $390 | average $334, median $325 | | Price | | $248.47 | Bands run from our bear to bull (the hollow mark is the original $327), our simulation's 10th to 90th percentile and the Street's low to high. Street targets forecast future prices, not value today. Market data, captured Oct 26, 2026. | Figure | Value | | --- | --- | | Fair value | $327 | | Price | $248.47 (market data, Oct 26, 9:16 AM PT) | | Five-year return | 16.5% (a year, at the report's price) | | Bear / bull | $120 / $558 | | Exit price | $505 (on Dec 31, 2031) | | Confidence | 28% | | Price against our scenarios | The price is justified in over 50% of our scenarios (4,000 simulated outcomes, each drawing the uncertain drivers from ranges we chose: our judgement, not a measured chance) | **What the price needs.** Any one of these, on its own, would justify the price: - AWS growth vs central: needs -14.3%, we have 0.0% - AWS margin before depreciation: needs 44.1%, we have 56.0% - AWS property per revenue: needs 0.484, we have 0 _This text argues the original call. The current figures are at the top._ **Original call, Oct 26, 2026 (before the Oct 26, 2026 restatement)** _As of 2026-10-26 · unblinded: a same-day revision of the fifth report under one long-run-return rule the owner approved for MSFT, GOOGL, AMZN and META (assumptions.md). Model committed before this report (). Revises the 2026-10-26 fifth report ($319, Buy), which stays on the record._ - **Fair value today:** $327 per diluted share, at a 10.01% cost of equity. Weighting the pessimistic, central and optimistic cases 25/50/25 (our weights) gives $333 - **Price:** $248.47, last trade 2026-10-26 16:16 UTC (official close 2026-10-23 $248.00) → 24% below fair value - **Five-year exit price:** $505 on 2031-12-31: the average of a long fade of returns toward the cost of capital ($392) and an outside view at the peers' 25.2 times operating profit ($619). Fading over 10 or 20 years gives $489 or $521 - **Five-year return:** 16.5% a year from $248.47 to the central exit (no dividends) - **Bear / bull today:** $120 / $558: the pessimistic and optimistic cases, each one coherent world - **Confidence:** About 28%: the share of our simulated values within 20% of $327, from odds.json's percentiles (subjective, not calibrated) - **Moat:** Scale in fulfilment and in cloud; $496B of contracted AWS revenue; an ads business on the store's traffic. No proven moat yet in renting AI capacity - **Market expects:** On our forecast, about 14.3 times 2031 operating profit for the outside view, against 25.2 times for the peers - **Price needs:** Any one of: AWS growth 14.3 points a year below our path; AWS margin before depreciation 44.1% (ours 56%); AWS property per dollar of revenue 0.48x higher every year (2027 capex about $412B, ours $258B); an ads margin of 17.5% (ours 50%) - **Odds:** P(price justified): 67%, the share of our simulated values at or above the price. Subjective, not calibrated (odds.json) - **Key driver:** The exit multiple: each 5 turns of 2031 operating profit is about $35 a share. In the forecast, AWS property per dollar of revenue (0.10x every year is −$16) and AWS margin (3 points is about $20) - **Street:** Average 12-month target $333.68 (median $325, range $300-390) (market data, read 2026-10-26 for the fourth report). An expectations reference, not validation **We keep Amazon a Buy and raise fair value to $327 from $319, against $248.47.** Nothing about the business or the forecast changed since the fifth report this morning. One input changed: the long-run return on new capital that the long fade uses after 2031. Our four hyperscaler reports set it four ways; the owner approved one rule for all of them (`valuation.md`, study 2026-10-26-hyperscaler-return-rule). **The rule.** Each case earns, on growth after 2031, its own year-five return on its net capital: year-five after-tax operating profit over 2026 net property of AWS and the stores ($543.4B: 2025's from the 10-K plus 2026 additions less depreciation, `model.py`) plus the case's 2027-31 capital spending less depreciation. Growth then needs the same capital per revenue dollar the case reaches in 2031, about 0.68 times revenue. The returns are 13.7%, 21.2% and 25.4% for the pessimistic, central and optimistic cases (output.txt), floored at the 9.44% WACC and capped at Amazon's median five-year return on the same measure, 30.9%; neither binds. The fifth report took 11%, 15% and 18% from Amazon's after-tax operating income over average net property in 2017-25, a whole-company average that assumed growth after 2031 needs more capital per revenue dollar than our own forecast holds. **What it is worth.** +$8.19 a share, from $319.12 to $327.31 (output.txt). The Buy holds under every capital choice we tested (below). ## What changed from the fifth report | Step | Pessimistic | Central | Optimistic | Weighted | |---|---:|---:|---:|---:| | The fifth report (2026-10-26-amzn-5) | $117.82 | $319.12 | $548.11 | $326.04 | | Each case's long-run return holds its own 2031 capital per revenue dollar | +$2.59 | +$8.19 | +$10.26 | +$7.31 | | **This report** | **$120.41** | **$327.31** | **$558.37** | **$333.35** | The fifth report's capital rule stands: 2028 capex is held at the 2027 level, $258B, and the excess property glides back onto our AWS path by 2030. Central capex: $258B, $258B, $192B, $143B, $202B, $225B for 2027-2032. Revenue, margins, the Anthropic stake, depreciation, the Q3 2026 forecasts and the exit multiple are unchanged; the third report's Q3 forecasts stay the graded set for 2026-10-29. ## The judgment range All from `capex_consistency.py` (output in `capex_consistency.txt`); the rating uses `restate.view()` at $248.47. | Capital choice (central and optimistic) | Central capex 2027-2032 ($B) | Central | Case-weighted | Rating | |---|---|---:|---:|---| | This report: 2028 held, back on the path by 2030 | 258, 258, 192, 143, 202, 225 | $327 | $333 | Buy | | Same, pessimistic case held too | same | $327 | $333 | Buy | | The fourth report's floor: 2028 level kept for good | 258, 258, 248, 261, 271, 287 | $268 | $282 | Buy | | Three-year glide: on the path only in 2031, the exit year | 258, 258, 211, 182, 155, 225 | $331 | $336 | Buy | | Microsoft's reviewer path scaled to Amazon (not Amazon evidence) | 258, 258, 214, 214, 235, 256 | $296 | $310 | Buy | | The third report: 2028 from the rule, cut | 258, 191, 193, 191, 202, 225 | $329 | $334 | Buy | | This report, AWS depreciation +2 points | 267, 267, 205, 157, 216, 239 | $309 | $318 | Buy | | This report, AWS depreciation −1.5 points | 252, 252, 182, 132, 193, 214 | $341 | $345 | Buy | Under defensible capital and depreciation choices the central runs from $268 (the permanent floor) to $341, and every one is a Buy at $248.47. We reject the three-year glide because it puts the lowest-capex year in 2031, the year the exit capitalises. ## Forecast and value Central case (output.txt): revenue $958.9B in 2027 and $1,447.1B in 2031, as before. Operating margin 14.2% in 2028 and 17.8% in 2031 as the lighter plant after 2029 lowers depreciation. The return on new capital over 2027-2031, volume only, is 20.1%; the long-run return, holding the central's own 2031 capital per revenue dollar, is 21.2%. Sensitivities (output.txt, each alone): AWS growth ±3 points a year −$21.5 / +$25.3; AWS cash margin 53% / 59% −$19.9 / +$19.9; AWS property per revenue ±0.15x every year −$24.3 / +$25.0; ads margin 40% −$24.2; mature return 11% −$16.2 and 18% −$4.2; stakes halved −$9.5; Amazon's own beta −$23.2; outside view at 20x / 30x −$37.5 / +$34.6. ## Why the other side could be right The case for the fourth report's number: AI plant may stay heavier per dollar of revenue than any earlier build, because accelerators wear out faster and inference demand keeps rising; then the 2028 level is the new normal and the value is $268, still a Buy. The long-run return could sit below the case's own: at the fifth report's 15% the central is $319. The case for lower still: AWS growth well below our path. The price needs AWS growth 14.3 points a year below ours, or a 14.3x exit multiple; either is the pessimistic world ($120), not a variant of ours. ## Catalysts and falsifiers - **2026-10-28**, Microsoft and Alphabet results: their 2027 capex wording. - **2026-10-29**, Q3 2026 results (the third report's preview and forecasts). - **Early February 2027**, Q4 results with the first 2027 capex figure; ours $258B. About $412B with no more AWS revenue than our path takes the value to the price. - **Falsifiers:** AWS margin below 34% in Q3 or Q4 2026 with growth under 38%; 2027 capex above $412B with Q4 AWS growth under 35%; AWS growth below 25% in any 2027 quarter with capex above $200B a year; backlog growth outside the two labs under $15B a quarter for two quarters; a 2029 capex figure at or above 2028's with no lift to AWS backlog, which points to the fourth report's floor, $268 under this report's rule. - **Anthropic tripwires** (added by the amendment below). None moves the central by itself; each raises the weight on the pessimistic case, where the labs miss and AWS capacity sits idle. - **V1.** Amazon books a quarterly loss on its Anthropic stake. Not possible in Q3 (no priced round; note value changes go to other comprehensive income); at the IPO, a price below about $56.27, the preferred's carrying value a share (inference, `funding.txt`). - **V2.** Anthropic's IPO prices, or trades for 30 days, below $58.90, the Series H price a common share. Each $1 below is $1.64B pre-tax on the preferred, $0.12 of EPS. - **V3.** Broadcom's notes to Anthropic step from 9% to 13% paid in kind (they do when Anthropic misses revenue conditions; S-1 p. 167), or Amazon's $15.0B facility stops being drawn because compute-capacity milestones are missed (S-1 p. 164-167; Amazon 10-Q Note 2). - **V4.** Vendor money rises above 25% of the new compute Anthropic signs. About 20% today: $82B of vendor facilities against about $417B of minimum payments signed or amended January 1 to June 1, 2026 (S-1 p. 164-169, F-64; our arithmetic in `../2026-10-26-googl-5/funding.txt`). ## Limits - **Depreciation and exit are not yet one rule across the three companies.** Amazon's AWS depreciation (13.5% rising to 16%) and asset lives stay its own, as do Alphabet's (14.2% steady, 25-year long life) and Microsoft's (18.3% steady, 20-year long life). Microsoft's exit capitalises free cash flow; Amazon's and Alphabet's capitalise operating profit. A shared treatment for both is follow-up work after this week's results. - The 2030 capex dip ($143B) comes from a two-year glide that absorbs the 2028 excess in one step. A three-year glide with the trough in 2031 gives about the same value ($331). - The long-run return holds 2031's capital per revenue dollar for good; that is a judgment, the case's own level rather than a rising or a falling one. The S-1 reading, the stake bridge, the earnings-with-marks table, the reaction hypotheses and the Q3 preview are the third report's (`../2026-10-26-amzn-3/report.md`) and are not repeated here. ## Funding the build, and the Anthropic marks (amzn-5 amendment, unchanged) Added to amzn-5 the same day, before the 2026-10-29 print; it changes no fair value, rating or forecast and stands as written. The Amazon arithmetic is in `funding.py` (output `funding.txt`); the four-company table is `../2026-10-26-googl-5/funding.txt`. **Amazon spends more than its operating cash flow and borrows the difference.** Fact (10-Q cash flow statement): Q2 2026 operating cash flow $45.4B, purchases of property and equipment $54.2B, 119% of it (120% with $0.4B of finance-lease principal; 117% net of $1.1B of sale proceeds and incentives, the basis of Amazon's free cash flow). Trailing twelve-month free cash flow was −$7.6B (10-Q). Q2 funding: $13.6B of long-term debt ($67.0B in the first half), no equity. Q3 funding (8-Ks): $25.0B of dollar notes closed July 9 and £4.25B of sterling notes closed September 14; a $17.5B delayed-draw term loan was open to September 30 (10-Q Note 5), its draw not yet disclosed. **Q3 and the fund's bear reading** (two or more of Microsoft, Alphabet, Amazon and Meta with Q3 capex above operating cash flow, with debt or stock funding the gap). Meta is already there: Q3 capex 103.5% of operating cash flow, 106.5% with finance leases (10-Q, 2026-10-22; met from cash raised by May's notes, with $35B of stock and mandatory convertible preferred filed October 26). Alphabet, reporting a day before Amazon, is likely to be the second (its preview, section 8). Amazon is likely to be a third: about $220B of 2026 cash capex (Q2 call) less $96.3B in the first half leaves about $56-62B for Q3, against Q3 operating cash flow we infer at $42-52B (Q3 2025 $35.5B; Q1 and Q2 2026 up 53% and 40% on the year). July's notes already supply the debt. **The deciding number is Q3 "Net cash provided by (used in) operating activities" against "Purchases of property and equipment"** in the release's cash flow statement. Our model already has Amazon building $258B in 2027, so a tripped reading confirms the path we value rather than adding to it (inference); what would count against us is Q3 capex above $62B with AWS growth below our 40%. **The Anthropic mark: none in Q3; the IPO sets the next, likely in Q4.** | Item | Amount | Quarter | Source | | --- | --- | --- | --- | | Series G-2: 19.3M preferred, 0.193B common shares at $25.91 | step-up to $58.90: $6.37B pre-tax | Q2, already booked inside the $50.5B of upward adjustments ("primarily" Anthropic preferred) | S-1 F-47, F-64; 10-Q Note 1 | | Series H: $5.0B in May at $589.0095 a preferred share | 0.085B common shares | Q2 | S-1 F-43; 10-Q Note 2 and MD&A ("$10.0 billion" of Anthropic preferred in Q2) | | No priced round in Q3 | none in EPS; note value changes go to other comprehensive income | Q3 | S-1 read; 10-Q Note 2 | | IPO price against $58.90, preferred | $1.64B pre-tax per $1; EPS $0.12 per $1 | Q4, if it prices this year | `funding.txt` | | Notes converting at the IPO under Amazon's 12% cap | $9.5-21.2B of other comprehensive income moved into other income, EPS $0.67-1.49 | Q4 | `funding.txt` | The third report counted Amazon's preferred as 1.559B common-equivalent shares, the series the S-1 itemises; the $5.0B of Series H Amazon bought in May adds 0.085B, so 1.644B. At $58.90 that is $96.8B against $92.5B carried, about $56.27 a share carried (inference: a discount Amazon applies for the non-voting class or other rights; it may or may not close at the IPO). No value changes: the model counts the stakes at their Q2 carrying values after tax. Counting the Series H shares against the cap also lowers the note shares that can convert at the IPO, hence the wider $9.5-21.2B range (the third report: $14-21B). The notes: $6.2B of principal that Anthropic carries at $108.6B (S-1 F-6, $108,566M), about $58.99 a share on 1.84B shares; Amazon carries them at $97.9B fair value, about $53.19 a share, with a $92.0B gain held in other comprehensive income (10-Q Note 2). EPS (GAAP, diluted; the third report): Q3 $2.06 without marks, and the same with Anthropic. Q4, if the IPO prices then: at $47.12 (20% below $58.90) −$1.37 on the preferred, −$0.69 to +$0.13 with the notes' conversion; at $58.90 nil on the preferred, +$0.67 to +$1.49 with the notes; at $70.68 (20% above) +$1.37, +$2.04 to +$2.86 with the notes. A Q4 gain is earnings noise, not new value. **Backlog.** Anthropic's Amazon minimum is at least $110.0B, May 2026 to April 2036, with a true-up (S-1 p. 172), about 22% of the $496B AWS backlog at June 30. Signed in April with no later amendment disclosed, it was in the June backlog already: no Anthropic step in Q3's (the S-1 read, finding 2). ## Revision history | Report | View | Pessimistic | Central | Optimistic | Central change | Price | Blinding | |---|---|---:|---:|---:|---:|---:|---| | 2026-10-15-amzn | hold | 98 | 255 | 418 | first | 254.06 | partly unblinded | | 2026-10-22-amzn-2 | buy | 150 | 321 | 443 | +66 | 250.38 | unblinded | | 2026-10-26-amzn-3 | buy | 118 | 320 | 550 | −1 | 249.87 | unblinded | | 2026-10-26-amzn-4 | buy | 118 | 266 | 468 | −54 | 249.87 | unblinded | | 2026-10-26-amzn-5 | buy | 118 | 319 | 548 | +53 | 248.47 | unblinded | | 2026-10-26-amzn-6 | buy | 120 | 327 | 558 | +8 | 248.47 | unblinded | ## Sources - The third report's sources (`../2026-10-26-amzn-3/report.md`), unchanged: Amazon's 10-Q and 10-K filings and calls, Anthropic's S-1, Reuters (2026-10-23), market data market data. - The long-run-return rule: `valuation.md` ("Mature return: the case's own capital held") and the study 2026-10-26-hyperscaler-return-rule. - The shared capital rule: amzn-5, `../2026-10-26-msft-4/` and `../2026-10-26-googl-5/`, set 2026-10-26 after two independent reviews (an Opus reviewer and a Codex reviewer) of the fourth reports. - Market quote, 2026-10-26 16:16 UTC. - The amendment: Amazon's 10-Q for Q2 2026 and 8-Ks of 2026-06-10, 06-12, 07-09 and 09-14 (SEC EDGAR, pinned in `data-manifest.json`); Anthropic's S-1 (accession 0001628280-26-067168); the four-company sources listed in `../2026-10-26-googl-5/funding.py`. This work was done with Claude, a model made by Anthropic, whose S-1 the third report reads: a conflict of interest.