Amazon Traded at 22 Times Forward Earnings Despite Strong Revenue Growth

Amazon's stock price has been underperforming its earnings growth, trading at just 22 times forward earnings. This is despite the company's strong revenue growth of 20% in recent quarters.

The main reason for this low valuation may be Amazon's heavy capital expenditures (capex) spending, which reached $220 billion this year after a previous estimate of $200 billion in the prior quarter.

This capex spending is largely due to the cost of memory chips, whose prices shot up amid an unprecedented shortage. As a result, Amazon's free cash flow has fallen to -$7.6 billion over the trailing 12 months, down from $18.2 billion in the year-ago quarter.

Amazon's balance sheet is still strong, with about $123 billion in liquidity, but investors are questioning whether the company can recoup its massive investment in AI infrastructure.