The hyperscalers are upping their capex spending, and Amazon (NASDAQ:AMZN) is no exception. The online bookseller turned megatech company is expecting to invest roughly $100 billion in capex in 2025 – the majority of it geared towards AI for AWS.
CEO Andy Jassy confirmed this large figure on Amazon’s most recent Q4 earnings call in early February, a few weeks after the DeepSeek revelations sent the markets reeling. The Chinese chatbot model – which reportedly needs much smaller levels of computing power – seemed to call into question the need for such large AI infrastructure investments.
One top investor known by the pseudonym Kody’s Dividends is not worried about these growing capex numbers – quite the opposite.
“The company’s planned capex for 2025 signals management’s optimism toward the future. Trends in e-commerce and cloud computing, as well as AI back up this bullishness,” declares the 5-star investor, who sits in the top 1% of TipRanks’ stock pros.
Kody points out that Amazon’s AWS segment saw sales increase by 18.9% year-over-year in Q4, reaching $28.8 billion. The investor adds that the company expects supply constraints and power limitations to lessen during the second part of the year, opening up even more opportunities for the segment to expand.
In addition, Kody notes that Jassy stated on the recent earnings call his belief that AI is the largest growth opportunity for Amazon since the cloud.
“Given that AI is already a multi-billion-dollar annualized run rate business for Amazon, and it’s growing at a triple-digit clip, this is arguably no overstatement on his part,” adds the investor.
Shifting to the other portions of the company’s business, Kody shares that AMZN’s retail sales keep on growing, propelled by product expansion and speedy deliveries. In 2024, the investor notes, Amazon added major brands such as Clinique, Estee Lauder, and Armani Beauty to its platform, with plans to offer even more products in the coming years.
As for the valuation, Kody points out that AMZN’s Price-to-Operating Cash Flow ratio currently stands at 15.7x, which is significantly less than its 10-year average of 23.8x. To the investor, this signifies that there is plenty of room for growth up ahead.
“From both a fundamental and valuation standpoint, Amazon is an especially compelling investment right now,” sums up Kody’s Dividends, who rates AMZN a Strong Buy. (To watch Kody’s Dividend’s track record, click here)
Wall Street could hardly agree more. With 47 Buy and 1 Hold ratings, AMZN claims a Strong Buy consensus rating. Its 12-month average price target of $286.91 would translate into gains of ~27%. (See AMZN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.