Amazon (NASDAQ:AMZN) shares are up 4.5% in Thursday’s session after CEO Andy Jassy pointed to accelerating momentum across the company’s AI efforts, revealing that its cloud segment is now generating an annualized $15 billion from AI-related products. At the same time, he highlighted the rapid expansion of Amazon’s in-house chip business, which has surpassed a $20 billion run rate – doubling from just $10 billion in the fourth quarter.
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Forget margin or options. Here's how the pros trade AMZNThe uptick is welcome news for investors, as the stock has been under pressure this year due to concerns around significant CapEx plans.
Drilling into that concern, Needham analyst Laura Martin notes 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.
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 support most of the increase in total CapEx, while 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 invested. At a reported 35% EBIT margin, that translates into a 16%–20% return on investment from the Cloud business alone for each incremental dollar of CapEx, implying a payback period of roughly five to six years. “In FY27E, we expect marginal ROIs to quintuple, as AMZN’s CapX growth moderates,” Martin went on to say. In the analyst’s view, the spending should prove worthwhile 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 all of this actually mean if you’re looking at the stock today? Martin is firmly in the bullish camp, rating AMZN a Buy, and her $265 price target points to ~15% upside over the next 12 months. (To watch Martin’s track record, click here)
Overall, the broader analyst community remains overwhelmingly bullish, with 43 Buys and just 3 Holds, adding up to a Strong Buy consensus. With an average price target of $284.34, investors could be looking at upside of about 23% over the next year. (See AMZN 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.