TD Cowen Affirms Amazon Buy Rating as AWS Growth Continues

Amazon's stock saw a modest rise on October 5, closing at $251.619 after TD Cowen reaffirmed its Buy rating on the company's cloud division, AWS. The firm's optimism is fueled by the rapid growth in cloud demand, but investors are waiting to see this momentum translate into stronger cash flow.

Amazon's second-quarter earnings highlighted AWS's robust performance, with revenue climbing 37% to $42.2 billion and operating income reaching $16.6 billion. The cloud division's operating margin now stands at 39.3%, underscoring its profitability. However, significant investments in AI and infrastructure pushed the company's free cash flow to a $7.6 billion outflow over the trailing twelve months.

The valuation of Amazon's shares remains close to TD Cowen's GF Value estimate of $250.18, suggesting minimal discount. While AWS has proven its profitability, the challenge ahead is whether Amazon can quickly fill its expanding data centers to restore positive free cash flow. Expanding capacity is only the first step, converting it into revenue-generating workloads will determine the success of these investments.