Amazon’s $200 Billion Problem Is Also Its Biggest Opportunity

The AI infrastructure buildout has given us so many winners that it is surprising to find a Mag 7 stock underperforming the S&P 500 over the last year. Yet that’s the story of Amazon (AMZN) stock, which has hardly seen any significant gains over the last 12 months. This has happened despite the company delivering solid financial results, expanding its autonomous vehicles and satellite internet project, and developing artificial intelligence chips as a new business segment. 

The $200 Billion Problem

Here’s a look at Amazon’s recent numbers: AWS revenue grew 28% YoY in the first quarter while Ad revenue grew 22%. And that’s all in addition to the company being the second-largest grocer in the US. Amid all this, however, is one stat that explains the stock’s underperformance, and that’s the free cash flow. The figure stood at $17.45 billion in the last quarter of 2025, but in three months, it totally changed direction, ending at negative $13.77 billion in the first quarter. The reason: approximately $200 billion in planned capital expenditures in 2026. To figure out where the stock could be by this time next year, arguably the most important metrics to track are the capex and the free cash flow.

According to Morgan Stanley’s report released on July 13, the company is expected to spend $218 billion in capex this year. The amount is expected to rise to $308 billion by 2027, and that’s what's weighing down on the stock. These investments come at a cost. There is now $127 billion of long-term debt on the balance sheet, and that’s without accounting for the $25 billion bond sale earlier in the month. Until the company reverses the direction of its cash flows from investing and financing activities, its share price is likely to remain depressed.

Anthropic Could Unlock Hidden Value

There’s one thing that could change the prevailing investor sentiment, though, and that’s the upcoming IPO of Anthropic. In the near-term, everyone will have their eyes on this IPO, whose dates haven’t been finalized yet. The company is miles ahead of the rest of the pack in terms of artificial intelligence development, and Amazon owns a good chunk of it. Some estimates suggest Amazon’s stake to be around the mid-to-high teens. 

Anthropic’s IPO, planned at some point at the end of the year, is one of the most awaited triggers for Amazon shareholders. It will not only confirm Amazon’s stake in the company but will also boost its financials, depending on what the company is valued at by that point. As of June 2026, the company was valued at $965 billion. 

Amazon Has Been Here Before

A negative free cash flow and heavy capex are nothing new for Amazon. This is, after all, how the company set up AWS over a decade and a half ago. Today, it is still growing at its fastest growth rate in 15 quarters! Moreover, while Wall Street argues about the company’s spending, its Ads business has quietly brought in over $17 billion in the first quarter alone. If there’s any company that knows how to generate return on its investments, it's Amazon.

As the stock trades close to its all-time highs, it is important to give some historical context to the opportunity that it presents, even at current elevated levels. The last time Amazon had a negative free cash flow was in 2021 and 2022, when it was paying the bills for heavy e-commerce expansion investments post-pandemic. Next year, the stock returned more than 80%. This has been the story of Amazon stock during the previous decade as well, and it has always returned strongly, primarily for a very basic reason. Its investments have come on the back of an extremely strong business generating high operating cash flow. 

In 2025, history repeated itself. The company invested heavily in AI infrastructure while its existing business continued printing cash. The stock returned just 5% during the year, but is already up over 10% this year and set to surge once AI investments start slowing down. 

The AI Payoff May Be Closer Than Investors Think

The company has already shown a glimpse of what can be expected once the spending cycle is over. Its AWS AI services business has reached an ARR of over $20 billion, growing at triple-digit rates, with the CEO Andy Jassy pointing out that this could be a standalone business in the future, in addition to helping the company improve its own margins through in-house chip production.

Amid choppy share price action over the past few months, Wall Street believes the stock is trading at an attractive valuation. According to Quantli’s compilation of analyst ratings data, the stock is currently trading below the lowest analyst price target of $275. 

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