Amazon (NASDAQ:AMZN) shares climbed about 4% today, riding a broader rally in tech as bond yields pulled back. The drop in yields followed a softer-than-expected producer price index reading alongside easing oil prices. Adding to the momentum, reports pointing to Amazon’s expanding push into satellite connectivity supported the long-term growth story.
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New trading tool for AMZN bullsThe rally builds on momentum from last week, when the stock surged after CEO Andy Jassy pointed to accelerating traction in key areas. According to Jassy, Amazon’s cloud segment is now generating roughly $15 billion in annualized revenue from AI-related products, while its in-house chip business has crossed a $20 billion run rate, doubling from $10 billion in Q4.
That rebound comes at an important time, as the stock has faced pressure this year amid investor concerns around heavy capital spending.
More specifically, Needham analyst Laura Martin points out that with projected FY26 CapEx of around $190 billion, it is the only hyperscaler not expected to fully fund that spending through free cash flow (based on Needham’s estimates).
The solution? As far as Martin is concerned, Amazon should scale back CapEx on all non-GenAI initiatives over the next two years to support the share price’s performance and reduce its cost of capital.
Martin’s argument is that AI-related (GenAI) CapEx is economically justified because the returns on those investments are high. Specifically, the cloud segment is generating enough incremental EBIT to effectively support most of the increase in total CapEx, and GenAI projects are delivering stronger returns than Amazon’s traditional eCommerce business.
Between FY23 and FY25, Amazon generated about 45%–57% more cloud revenue for every additional dollar of CapEx it invested. At a reported 35% EBIT margin, that translates into a 16%–20% return on investment from the cloud business alone for each extra dollar of CapEx, implying a payback period of roughly five to six years, which Martin describes as “very fast.” Looking ahead, Martin expects marginal returns to improve further, noting that “in FY27E, we expect marginal ROIs to quintuple as AMZN’s CapEx growth moderates.” In the analyst’s view, that means the heavy spending should pay off over time.
In fact, Martin takes a wholly positive outlook regarding Amazon’s AI endeavors and lays out several “upside value drivers for AMZN in a GenAI future.” Its logistics network and proprietary first-party data create a durable moat that positions it well for AI-driven commerce, while AWS, as the leading cloud platform, monetizes enterprise AI demand and helps offset heavy CapEx through high-margin, third-party revenue. At the same time, in-house chips like Trainium lower costs and attract “price-conscious enterprise customers,” while GenAI products are already accelerating revenue growth by improving conversion, basket size, and seller efficiency.
These factors, alongside disciplined capital allocation, rising labor productivity, and a strong track record in executing large-scale infrastructure, are why Martin thinks the AI-related capex is not only justified but is actually driving higher returns, particularly as cloud and GenAI economics outpace the core eCommerce business.
So, what does this all essentially mean for investors? Martin assigns Amazon shares a Buy rating, while her $265 price target offers 12-month upside of 6%. (To watch Martin’s track record, click here)
Overall, with 43 Buy ratings against just 3 Holds, Wall Street’s verdict is clear – this stock earns a Strong Buy consensus. And if the $284.09 average price target proves accurate, investors could be looking at ~14% upside over the next year. (See Amazon stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.