Amazon Stock Valuation Metrics Confusing Investors

Amazon's stock price is causing confusion among investors due to its contradictory valuation metrics. On one hand, it trades at 22.6 times earnings, which is lower than the S&P 500's multiple of 23.9. However, when looking at cash flow, Amazon appears pricier with a multiple of 18.7 compared to 15.7 for the index.

The main reason for this discrepancy lies in the company's heavy investments in cloud infrastructure, particularly its AWS segment. The cloud build has resulted in negative free cash flow over the trailing twelve months, which is carrying the bill for these investments. On the other hand, earnings already reflect the profit from these investments.

AWS revenue grew 37% year-over-year in the quarter ended June, with a $496 billion backlog supporting the spending. The retail side of Amazon's business is also growing, with same-day perishables now available in 2,300 U.S. cities.