Why Amazon Stock Can Keep Rising Through 2035
Most of the attention on Amazon (AMZN +0.56%) goes to its cloud business, Amazon Web Services (AWS). But the company’s online stores are quietly becoming more profitable, thanks to automation and robotics. That’s a big reason the stock can keep rising through 2035.
On the third-quarter earnings call, CEO Andy Jassy said, “There has never been a business with a trillion dollars of annual revenue. Amazon is on a path to have two of them in AWS and stores.” He added that some folks are “sleeping a bit” on how much progress the retail business has made.
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Amazon’s robots are making every package cheaper to ship
That progress shows up in profit margins. Jassy said Amazon’s North America and International segments have each expanded operating margins by nearly 10 percentage points over the past few years. The company is also on track to lower its cost to serve each unit, or deliver each item, for a fourth straight year.
Robotics is a big driver. Amazon has more than 1 million robots in its fulfillment network, and its newest facilities, including same-day delivery sites, are “very heavy on robotics.” In the third quarter, shipping costs, excluding fuel and long-haul inflation, grew about four percentage points slower than units shipped. Jassy said the economic impact on its business so far is “small compared to what it is going to be in the next five years.”
AMZN – Amazon
$247.01+$1.38 (+0.56%)
NASDAQ · As of 10:01 AM ET 11/03/26
Amazon’s cash flow multiple is the lowest since 2008
Lower costs on a sales base this large, with Amazon’s online store generating $286 billion in annual revenue, can free up a lot more cash. Over the past 12 months, operating cash flow, the cash the business brings in before investments, grew 29% year over year to $168 billion. It has compounded about 25% a year over the past five years, and with Amazon’s automation push still early, that cash flow has room to keep growing for years. And over time, Amazon’s stock price tends to follow cash flow.
Yet the stock trades at about 16 times operating cash flow, based on the Oct. 29 close. That’s near the lowest multiple Amazon stock has traded since the 2008 bear market — a discount for a business whose cash flow is still growing rapidly and has room to expand.
The risk: A $220 billion spending bill
The risk is heavy spending. Amazon expects capital expenditures of about $220 billion in 2026, mostly for Amazon Web Services, and management expects to spend “meaningfully more” in 2027. High capital spending has pushed free cash flow (operating cash flow minus capital expenditures) negative over the past year.
If those investments don’t earn strong returns, free cash flow could stay low and weigh on the stock. Still, with retail becoming a second profit engine and the stock trading at a discount, Amazon shares could deliver excellent returns over the next 10 years.
Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.