Amazon's AI Capex Surge Raises Valuation Concerns
Amazon's capital expenditures have surged in recent years as it invests heavily in artificial intelligence-related projects, according to Deutsche Bank. The bank highlighted a pronounced increase in AI capex among the largest S&P 500 companies, with Amazon leading the charge along with Alphabet, Microsoft, Meta Platforms, and Oracle.
The five biggest spenders have collectively boosted capital spending by $403 billion since Q1 2024, significantly outpacing the rest of the market. This AI capex boom is reshaping capital deployment strategies and driving demand in sectors like semiconductors and data-center real estate investment trusts (REITs).
Amazon's valuation landscape is complex due to its status as a high-growth but cash-flow-negative company. The company's Price-to-Sales ratio stands at 3.59x, slightly above its historical median of 3.44x, signaling the market's expectation of sustained growth. However, Amazon remains unprofitable on a free cash flow basis, with a negative free cash flow yield of -0.42%.
The GF Value for Amazon is $247.80, which is approximately 3.7% below the current market price of $257.02. This suggests a slight overvaluation, but it should be interpreted cautiously due to Amazon's unique financial profile and ongoing investments in AI-related projects.