Tech giant Amazon (AMZN) is pointing to the strong demand for its cloud business as the reason why it’s spending heavily on artificial intelligence. On its earnings call, CEO Andy Jassy said that the company’s cloud backlog, which is future revenue already under contract, reached $364 billion in the first quarter. This is a big jump from $244 billion in the previous quarter and does not include a separate deal with Anthropic that’s worth over $100 billion.
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Forget margin or options. Here's how the pros trade AMZNHowever, this also helps explain why Amazon’s cash flow looks pressured right now. The company is spending large amounts of money on data centers, chips, servers, and networking equipment before it can earn money from those investments. Jassy said that there is usually a delay of six to 24 months between when Amazon spends the money and when it starts billing customers. As a result, expenses are rising now, while the revenue from those investments will come later.
Even so, Amazon says it is not taking unnecessary risks. Jassy explained that the backlog comes from many different customers, not just one or two, which makes it more stable. Nevertheless, investors will be watching the backlog closely to see if it turns into real revenue over time. If it does, the company’s heavy AI spending could be seen as a smart long-term move. In fact, Amazon’s stock recently hit a new intraday high and received a wave of analyst upgrades, which shows that investors are willing to give the company time to prove if its strategy works.
Is Amazon a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Strong Buy consensus rating on AMZN stock based on 43 Buys and two Holds assigned in the past three months, as indicated by the graphic below. Furthermore, the average AMZN price target of $312.98 per share implies 21% upside potential.
