Amazon Stock's Discount Turns Out to Be a Premium Multiple

Amazon's stock price has been under pressure lately, but is it really a bargain? At first glance, the company appears to be trading at a discount to its peers. With a trailing twelve-month unadjusted earnings multiple of 20.6 times, Amazon seems cheap compared to the S&P 500 median of 23.2. However, this apparent discount is largely an accounting artifact.

When stripping out non-operating gains, Amazon's stock price reveals a different story. The company trades at roughly 38 times normalized earnings, which is actually a premium to the broader market. This has led investors to question whether Amazon's underlying operating engine justifies paying such a high multiple amid an aggressive investment cycle.

Fortunately for investors, the numbers tell a more optimistic story. Amazon's revenue grew 15.8% over the last twelve months, nearly double the S&P 500 median of 8.4%. The company is profitable, and its operating margin is holding steady, not shrinking. Crucially, the earnings are backed by cash, with an operating cash flow margin of 21%. These are not the vital signs of a business in decline.

The market's anxiety is rooted in Amazon's plan to spend approximately $220 billion in cash CapEx in 2026. This large investment is dedicated largely to expanding infrastructure across the company to support generative AI and meet surging demand, with the majority directed toward its Amazon Web Services (AWS) division. AWS revenue growth accelerated for the fifth straight quarter to 37%, and it is now a $169 billion annualized revenue run rate business.