AMZN is Crashing Here s Everything You Need to Know

Hello everyone and welcome back to another video. Amazon is currently down over 9% in after hours trading after reporting its 4th quarter 2025 earnings results. So in today's video, I want to quickly run through Amazon's earnings report and share all of the highlights that investors need to know. I will also be sharing my thoughts on Amazon's valuation and what I am going to be doing with my position after this earnings report. So with that being said, let's just hop right into it. Alright, so right away, we can see that Amazon's net sales increased by 14% to $213.4 billion for the 4th quarter. North American segment sales were up 10%, international segment sales were up 17%, and AWS revenue is up 24% to $35.6 billion now. This means that AWS is continuing to accelerate, which is a great thing to see for the business. Amazon's operating income increased to $25 billion for the 4th quarter as well, with North America's segment operating income of $11.5 billion and AWS operating income of $12.5 billion. So right away, this quarter seems like it is pretty solid. Amazon is continuing to grow its revenues by double digits, and AWS is accelerating to 24% year-over-year growth. Now, Amazon's growth rates are below the other hyperscalers that we have seen so far, like Google, Meta, and Microsoft, but this is because Amazon's overall business is so much larger. And even AWS is a much larger cloud business than Azure and Google Cloud. So those businesses, while they're still very impressive and Google's cloud revenue growth rate was ridiculous, it does still make sense why Amazon's overall business and cloud business are growing at slower rates. Now, moving on to the full year results, we can see that revenue increased by 12% to $716.9 billion. That is absolutely insane. North America's segment revenue increased by 10%, international increased by 13%, and for the full year, AWS saw 20% year-over-year growth to $128.7 billion. Operating income also increased to $80 billion for 2025 versus $68.6 billion in 2024. AWS's operating income came in at $45.6 billion compared with $39.8 billion in 2024, which means that AWS's operating income increased by somewhere around 12% year-over-year. Now, I think that this is one of the reasons why Amazon's stock is selling off in after hours, because AWS's operating income is not growing with its overall revenues, which means that the AWS operating margin is declining right now. This is at the same time as Google just posted a ridiculous Google Cloud quarter with 48% year-over-year revenue growth, a massive acceleration, and its operating margin also doubled, well, more than doubled year-over-year to 30%. So Google Cloud had a fantastic quarter, by far the best quarter out of all of the hyperscalers. AWS here is good, especially for the top line, but it's not ideal to see that the operating margin is declining on a year-over-year basis. Moving on though, here we can see that operating cash flow increased by 20% to $139.5 billion for the trailing 12 months. However, free cash flow decreased to $11.2 billion for the trailing 12 months, and Amazon really did not produce that much free cash flow in 2025, which could be another reason why the stock is selling off in after hours. Then the CEO says, AWS growing 24%, which is our fastest quarter in 13 quarters. Advertising grew 22%. Stores are growing briskly across North America and international. Our chips business is growing triple-digit percentage rates year-over-year. This growth is happening because we're continuing to innovate at a rapid rate and identify and knock down customer problems. With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low-Earth-orbit satellites, we expect to invest about $200 billion in CapEx across Amazon in 2026 and anticipate strong long-term return on invested capital. This $200 billion CapEx guide for 2026 is most likely the main cause for concern for investors. And it's kind of funny because it seems like every so often, the market gets extremely concerned about the level of CapEx that the hyperscalers are doing again. Like, in Meta's earnings results, the stock was up roughly 10% in after hours because they saw a lot of revenue acceleration and they're guiding for 30% year-over-year revenue growth in the first quarter, despite them also announcing that they're going to increase their CapEx guide and CapEx spend significantly in 2026. So even just a couple of weeks ago, the market didn't really seem that concerned about Meta's CapEx. But now after Microsoft has reported, Google has reported, and now Amazon has reported, all of these stocks have sold off due to the increased CapEx spend. And it seems like investors are really wanting to start seeing these companies report better metrics in terms of margins and actual profitability improvements if they're going to be spending literally hundreds of billions of dollars on CapEx now. This is an insane amount of money that these companies are spending on artificial intelligence and CapEx. And I think investors are starting to get more and more concerned about the sheer amount of capital going to this build-out. And I think that the concern is growing because Google just announced $180 billion of CapEx for 2026, but they don't produce that much in operating cash flow, which means that these companies are actually projecting to be free cash flow negative in 2026, which ultimately means that they're going to have to start leveraging up their balance sheets, and I believe that Google's levels are already increasing quite significantly, to fund all of this CapEx. So the risk associated with this CapEx is now starting to increase because it's starting to go beyond the actual profits that these businesses are generating. So expect Amazon and Google especially to be free cash flow negative next year. And I think the number one thing that investors should be focusing on, because I am going to remain invested in Amazon over the next year, is the revenue growth rates continuing to accelerate, especially with AWS, and I also want to see operating cash flows continuing to grow. Because operating cash flows tells us how much cash the actual operations of the business are producing, and that is the number one metric that I am focusing on right now for Meta, Microsoft, Amazon, and Google. I want to make sure that all of the operating profits of these businesses are growing while they're going through such massive CapEx cycles. To put it simply, I think that focusing on the actual free cash flow metrics is going to tell you absolutely nothing right now, and it's going to trick you into thinking that these stocks are extremely expensive because, again, Amazon just produced 11 billion dollars in free cash flow for 2025, so its price to free cash flow is going to be something like 200 right now. And I already know that people are going to tell me that Amazon stock is massively overvalued because of that, but I think it's more wise right now to focus on the operating cash flows instead and what the price to operating cash flow of these businesses are. But let's move on through the earnings report and get to some of the business highlights, and here Amazon announced a new AWS agreement with OpenAI. This is probably another reason why the stock is down, because OpenAI has become like a nuke for your share price. It seems like if you announce that you're working with OpenAI now, you're met with pessimism and negativity. So Amazon announcing a partnership with OpenAI in the current market sentiment is actually a negative thing for the business, which I also think is funny because just a few months ago, maybe six months ago, if you announced that you were working with OpenAI, it was a guaranteed way to see your stock price rise dramatically. I mean, just take a look at what happened to Oracle after they announced their partnership with OpenAI and those hundreds of billions of dollars of RPOs from OpenAI. And I also think that this is a clear indicator that the market can get it completely wrong in the short term, and short-term price action means absolutely nothing. Because again, just a few months ago, if you announced that you're working with OpenAI, it was thumbs up, bullish, let's buy up your stock, which obviously in hindsight was the wrong thing for the market to do. So I think that getting so caught up in the short-term share price reaction after earnings or announcements and taking those reactions as gospel and using them as an indicator as to whether you're making a good decision or bad decision with your investments is a mistake. Because time and time again, the market gets it wrong in the short term. So that's all I want to say is try not to view short-term price action as validation on if you're making a mistake or not. You can actually take advantage of short-term price action when the market is getting it wrong. But getting back to our screenshot, here we can see that Trainium and Graviton now have a combined annual revenue run rate of over $10 billion and growing at triple digit percentages year over year. Trainium 2 is fully subscribed with 1.4 million ships landed and powers the majority of inference used on Bedrock, a service used by 100,000 plus companies. Anthropic is using Trainium 2 to train its industry-leading AI model, Claude. Trainium 3 is now delivering production workloads and seeing strong demand, with nearly all Trainium 3's supply of ships expected to be committed by mid-2026. Trainium 4 is expected to start delivering in 2027. Graviton is also up to 40% more price performant than the leading x86 processors and enables applications to run faster, reduce costs, and meet sustainability goals. I think that all of this is very good for Amazon and the most impressive metric right here is that the Trainium and Graviton ships now have a combined annual revenue run rate of $10 billion and the growth rate is more than doubling year over year. So this is a very large business that's seeing tremendous demand and tremendous growth. Amazon is also continuing to ship new ships and their Trainium 3 is projected to sell out and be fully committed by the middle of 2026. This is very bullish for Amazon overall. Now moving on to the guidance, here we can see that revenue is expected to be between $173.5 and $178.5 billion, which is growth of 11 to 15%. So Amazon is expecting to continue growing revenue by those double digit growth rates, which I think is good to see. Operating income is expected to be between $16.5 and $21.5 billion compared with $18.4 billion in the first quarter of 2025. So Amazon is not really expecting their operating income to grow that much next quarter. This guidance also includes approximately $1 billion of higher year over year costs associated with Amazon Leo as they scale in 2026. Amazon Leo is their satellite internet that competes directly with Starlink. Amazon is really pushing this business and investing in this business and I actually think that this is a fantastic thing because satellite internet, I think at least, is going to be the future and I think that this will be a massive revenue and profit driver for Amazon's business over the coming decades. Amazon is a very long term business. They think in years and decades. They don't think about hitting their quarterly results. They try to invest in things now, sacrifice profitability today, to create massive products over the coming decades. That has always been the thesis for Amazon and it's just interesting to see that despite this always being the thesis, whenever Amazon announces that they're investing in their business, the stock tanks. And as a long term shareholder, I would actually prefer them to continue investing since I want to own this business for decades to come. Alright, now moving on to the cash flow statement, right away we can see that operating cash flow came in at $54.4 billion this quarter, which was up $9 billion year over year or 20%. For the full year of 2025, Amazon produced $139.5 billion in operating cash flow, which was growth of roughly $24 billion year over year. However, we can see that Amazon's capital expenditures were $131.8 billion this year versus $83 billion last year, which caused Amazon to produce basically no free cash flow in 2025, which I think the market is starting to get worried about, especially when Amazon is basically projecting to be free cash flow negative in 2026 now. Moving on to the next screenshot, this one shows us a table of all of Amazon's different businesses and their respective growth rates. So here we can see that third party seller services grew by 10% year over year. Advertising services also increased by 22% and it has been maintaining that 22% growth rate since the second quarter of 2025 now. And this 22% growth rate is an acceleration over 2025, which I do think is great to see. Subscription services also accelerated to 12% year over year growth, which is also good. And AWS also saw that acceleration to 24% year over year growth. So AWS subscription services and advertising services are all seeing an acceleration to their businesses, which I do think suggests that Amazon's investments back into the business are paying off and actually accelerating the business overall. This next screenshot is Amazon's AWS revenue growth rates, and I actually took this from Quality Invest on X. He's a great person to follow and post these charts quickly after earnings reports. So thank you for posting this one. But again, this one shows us the AWS revenue growth rates, and we can clearly see that it is accelerating quite a bit right now, which is fantastic. This next screenshot shows us AWS, Azure, and Google Cloud growth rates, and we can see that both Google Cloud and Amazon are seeing an acceleration to their revenue growth on a year over year basis. And Microsoft Azure saw its revenue decelerate. As I said earlier, Google Cloud was clearly the outlier and the winner in the fourth quarter of 2025. And I do think that Amazon would come in second, at least for me personally, because they're continuing to see an acceleration at the same time as Azure is seeing a deceleration. And I think that this is partly why Microsoft stock has been so weak after earnings. So now let's talk about Amazon's valuation quick. And after this earnings report, with the stock price falling and operating cash flow growing, the stock is trading for about 15.7 times operating cash flows in after hours trading. And if we take a look at Amazon's historical price to operating cash flow multiple, you have to go all the way back here to 2010 to get a price to operating cash flow multiple of roughly 15.8, which is actually slightly above where Amazon is currently trading in after hours. So you have to zoom out all the way to the pit here in 2009 during the financial crisis to get a price to operating cash flow lower than what Amazon is trading for today. Or in other words, the last time that Amazon has traded for a price to operating cash flow multiple this low was literally during the financial crisis in 2009. Now I do think that there are a lot of strong arguments why Amazon does deserve a lower multiple. One of them is simply because the business is so much larger. So its growth rates have decelerated, which naturally lowers and compresses your price multiple. And the other reason is because it's very clear that all of these hyperscalers are very capital intensive businesses. At least right now, they're spending hundreds of billions of dollars on CapEx, so they're not as lean businesses as they once were, or at least time will tell if they can get back to those same free cash flow margins over the long term. So I do think that also deserves a multiple compression in terms of price to operating cash flow. But still, I think that Amazon is starting to look quite cheap here. They just grew their operating cash flows by 20% year over year, and they're trading for their lowest multiple since the financial crisis. Now I also have this new chart right here on Stock Unlocked, which shows Amazon's historical valuation score. This is not a public feature yet, and it is going to be launching next week, but we can see right here that before the earnings report, Amazon's valuation was in the good range. And this chart should update tomorrow after the close, and I am pretty sure that it will give a very good valuation score again, which it was down here in April of 2025. So Amazon in my opinion was looking pretty fairly valued before this earnings report, and the fact that its operating cash flows are continuing to grow so well, and its share price just fell by 10%, I think that it is starting to look quite attractive again. Now lastly, let's run some DCFs on Amazon using its operating cash flow, and I am going to project out 12% growth over the next 5 years, and a 20% price to operating cash flow, which is still well below Amazon's long term average of 24 to 25. So if Amazon can continue to grow operating cash flow by 12% annually over the next 5 years, then the stock could compound by 14% relative to its closing price, and its future stock price could be $428 per share. Relative to the price of Amazon in after hours trading, it could actually compound by roughly 16%. Now I also think that this is a slightly more DCF for Amazon because they are growing operating cash flows by 20% right now, and if they are investing so much money into CapEx, then I do think that there is an argument that their operating cash flow growth rates could actually accelerate if there truly is that much demand for their services for AWS and for their Tranium chips. Or in other words, a 12% annual growth rate would be a pretty large deceleration to the business's growth rates at the same time as they are kicking up their CapEx and saying that they want to execute on all of their demand. So in my opinion, this was a pretty good earnings report from Amazon. It wasn't a blowout quarter or anything like that, but the business is chugging along, and a lot of its highly profitable business segments are actually accelerating, which is exactly what you want to see when they are investing so much money into CapEx. As a long term investor in this business, I would also prefer them to continue investing as much money as possible into growth if they believe that they can get high returns on their invested capital, which the CEO does believe they are doing. So we're going to have to see how this all plays out over the long term, but it's very clear that investors and the market as a whole are skeptical that Amazon's 200 billion dollars of CapEx is actually going to be profitable and work out over the long term. Amazon is also projecting to be free cash flow negative in 2026, which means they're probably going to have to take on debt next year, and I think that this is increasing the overall risk of the business. At least, that's what analysts are thinking in the short term. But again, as a long term shareholder, I do think the business is starting to look quite compelling, and the stock could be potentially undervalued here if the operating cash flow can continue to grow by at least 12% over the next five years. So I'm probably going to end up adding to my Amazon position if the share price does remain down and I can get more cash in my accounts because I've deployed a lot of cash recently. But yeah, I think Amazon is looking just fine. I thought the report was pretty good, and I don't think the stock necessarily deserves to be down 10% in after hours trading. But with all that being said, that is going to wrap up today's video. And if you enjoyed this video, then please remember to leave a like on it. And if you're not already subscribed to my channel and you want to see more content like this, then please consider subscribing as well. And as always, thank you so much for tuning in. I truly do appreciate it, and I hope to see you all again in my next video.