Amazon's $3 Trillion Valuation Raises Red Flags for Investors

Amazon.com Inc. (AMZN) recently celebrated its own victory lap after beating quarterly earnings and revenue expectations. The company reported $1.97 in adjusted earnings per share and $200 billion in revenue, with AWS revenue growing 37% from the same quarter last year.

This milestone pushed Amazon's market valuation beyond $3 trillion, joining a select group of companies including Apple Inc. (AAPL), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA), and Alphabet Inc. (GOOGL).

However, despite this achievement, analyst Eric Fry is not changing his 'Sell' rating on the company. He believes that Amazon's success has created high expectations for future earnings, making it vulnerable to disappointment.

Fry points out that $53.4 billion of Amazon's profit did not come from growing its core businesses, but rather from an increase in the value of its Anthropic investment. Additionally, Amazon raised its full-year capital expenditure (CapEx) guidance to roughly $220 billion, citing rising memory costs.

This increased spending will put pressure on Amazon to deliver even higher profits in the future, making it harder for the company to justify its $3 trillion valuation. Fry notes that this is a double-edged sword, as investors are not just betting on current profits but also expecting AI investments to generate much bigger profits.

Founder Jeff Bezos' recent decision to sell around $4 billion of his own shares also suggests that he doesn't see unlimited upside from here. Bezos has been steadily trimming his stake for years and this latest sale reinforces the idea that insiders are selling as expectations are high and gains may be limited.