Amazon (AMZN) is the artificial intelligence (AI) play that matters because its push into custom silicon is transforming the economics of the entire business. This year, Amazon Web Services (AWS) seems to have a clearer path to reduce costs and expand its margins. AWS also provides Amazon with greater control over its AI infrastructure.
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Forget margin or options. Here's how the pros trade AMZNSo while much of the market is focused on the size of Amazon’s spending, I believe the more important story is what that investment unlocks in terms of growth and pricing power. That is why the silicon decoupling thesis has become central to the Amazon story and why I remain bullish on the stock.
The Dawn of Silicon Independence
For years, the knock on Amazon Web Services was its perceived “Nvidia (NVDA) tax”. That every dollar of AI growth was partially subsidizing Jensen Huang’s trillion-dollar empire was somewhat of a reality. Nevertheless, this year’s landscape looks fundamentally different. Amazon’s decision to allocate a staggering $200 billion to capex this year marks a full push toward its “Silicon Independence.” The company is transitioning the backbone of AWS to in-house hardware and decoupling from supply chain bottlenecks that still plague its peers.
We are finally seeing the “Annapurna” bet pay off in a big way. For Amazon, it’s no longer about having its own chip. It’s about having the right chip for the current economic climate. In earlier years, the market was obsessed with raw Floating Point Operations Per Second (FLOPS) and peak performance, but now it’s the year of “frugal AI.”
Enterprises are tired of the exorbitant costs of training and running models on general-purpose graphics processing units (GPUs). Amazon realized early that if it could own the silicon, it could own the customer’s margin. This vertical integration is the most significant moat expansion I’ve seen in tech since the original launch of Elastic Compute Cloud (EC2).
Trainium3 and the Great Land Grab
Why is AWS currently winning the mid-market “land grab”? Look no further than the Trainium3 (Trn3) chip. The specs are impressive, sure, but the economics are devastating for the competition. Because of moving to the Trn3 UltraServers, it is reported that AWS is now undercutting Nvidia-dependent rivals by a massive 40% on a price-performance basis. When every Fortune 500 company is trying to scale generative AI without bankrupting the IT department, a 40% discount sounds sweet.
This cost advantage is allowing Amazon to seize the middle of the market, catering to the developers and enterprises who need massive scale but can’t justify the “Nvidia premium.”
The validation of this strategy didn’t come just from small-cap startups. The recent $100 billion expansion of the AWS-OpenAI partnership, which includes a massive commitment to Trainium capacity, was the “shot heard around the world” for the chip industry. If the very pioneers of the large language model (LLM) movement decide that your custom silicon is the most efficient way to run their next billion parameters, that shows Amazon’s teeth in the game. AWS is quickly transforming from a mere hardware landlord into a high-performance foundry that targets to deliver the most cost-effective “intelligence per watt” on the planet.
A One-of-a-Kind Steal
Now, despite Amazon’s technological leaps, Wall Street is looking at the stock through a rearview mirror, distracted by the short-term “capex drag” on the balance sheet. However, the moment you look at the numbers, you quickly see that the stock is fundamentally misunderstood. The consensus earnings per share (EPS) estimate for FY2026 currently stands at $7.72, with 2027 projections at $9.35. At current prices, we are looking at a forward P/E of 27x for this year and a mere 23x for the next. For a company growing its bottom line at this clip, while simultaneously possessing an unbeatable e-commerce moat and a dominant cloud business, these multiples are absurdly cheap.
To call Amazon “just a retail company” in 2026 is absurd. The retail business has become a high-margin advertising machine that effectively funds the AI revolution happening at AWS. So if you think about it, you’re getting the world’s most efficient logistics network and its most advanced AI infrastructure for a multiple that is barely higher than some legacy staples companies. If I dare say, Amazon even looks like a sort of deep value play, in my view.
Is AMZN Stock a Buy, Sell, or Hold?
On Wall Street, Amazon stock has a Strong Buy consensus rating based on 42 Buy and three Hold ratings. Also, AMZN’s average price target of $284.30 implies a 34% upside potential over the next 12 months. This suggests Wall Street widely views the stock as deeply undervalued.
The Bottom Line
Amazon has done more than grow from a cloud provider into a major silicon player. The company now controls the hardware, the software, and the route to market. In turn, this gives it an edge that looks stronger and more durable than most people seem to appreciate. At these multiples, the bigger risk may be standing aside while Amazon strengthens its hold on the AI landscape.