Executive Summary & Investment Thesis

Our BUY rating on Amazon is based on a Sum-of-the-Parts (SOTP) analysis that reveals a significant undervaluation of its high-growth, high-margin segments. The market continues to price AMZN as a consolidated entity, where the immense profitability of Amazon Web Services (AWS) and Advertising is obscured by the capital-intensive Retail segment. We believe AWS is a crown-jewel asset that alone justifies over 60% of the current market cap. As these segments continue to outgrow retail, their true contribution to free cash flow will become undeniable, leading to a significant re-rating of the stock.

12-Month Price Target

$280.00

User Purchase Price

$227.00

Potential Upside

~23.3%

Valuation Basis

SOTP

The primary catalyst for value realization is the ongoing margin expansion driven by the revenue mix-shift. AWS is poised to re-accelerate growth as enterprise cloud optimization cycles mature, while the Advertising business continues to take share in a duopolistic digital ads market. The Retail segment, now focused on profitability over hyper-growth, is streamlining its cost structure, which will provide further upside to operating income. We see a clear path to our $280 price target as the underlying profitability of each segment becomes more transparent to investors.

Three Interlocking Moats

Amazon's competitive advantage is not a single moat, but a series of interconnected moats that reinforce each other, creating nearly insurmountable barriers to entry in each of its core markets.

1

Retail Network Effects & Logistics

The classic flywheel: more third-party sellers attract more Prime customers with greater selection, whose buying power funds faster delivery and a logistics network that rivals global carriers.

2

AWS: High Switching Costs & Scale

As the pioneer and leader in cloud computing, AWS benefits from deep enterprise integration, creating extremely high switching costs. Its massive scale provides a cost and innovation advantage that is difficult to challenge.

3

Advertising's Closed-Loop Data

Amazon's ad platform leverages unparalleled first-party data on consumer searches and purchases, offering advertisers a "closed-loop" attribution that is highly attractive and difficult for rivals like Google or Meta to replicate.

Revenue by Segment (TTM)

The Margin Expansion Story

The key financial narrative for Amazon is the powerful effect of its revenue mix shifting toward high-margin AWS and Advertising services. While Retail revenue growth is moderating to a more mature rate, the faster growth of these other segments is structurally enhancing the company's overall profitability and free cash flow generation, as illustrated in the forecast below.

Revenue & Operating Margin Forecast

Illustrative TTM Financials

Revenue (TTM)$591 B

Gross Margin48.1%

Operating Margin9.0%

Operating Income$53.2 B

AWS Op. Income$28.9 B

Free Cash Flow (TTM)$51.5 B

Shares Outstanding~10.5 B

A Multi-Front War

Amazon does not have a single competitor; it has specialist competitors in each of its major markets. Walmart is its primary retail challenger, while Microsoft and Google are its key rivals in cloud and advertising. The radar chart highlights how no single competitor can match Amazon's strength across all of its core domains.

Competitive Domain Analysis

Key Competitors by Segment

Segment	Primary Competitors	Competitive Intensity
Cloud (AWS)	Microsoft (Azure), Google (GCP)	High
E-Commerce	Walmart, Shopify, Target, Temu/Shein	High
Advertising	Google, Meta Platforms	Medium-High
Media/Streaming	Netflix, Disney, YouTube	Medium-High

Interactive Sum-of-the-Parts (SOTP) Valuation

Amazon's true value is best understood by valuing its segments separately. Use the sliders below to adjust the valuation multiples for AWS, Advertising, and Retail based on their respective growth and margin profiles. See how these changes affect the overall SOTP-derived share price. This tool demonstrates how critical the high-margin segments are to the overall valuation.

AWS Multiple (EV / NTM Sales): 7.0x

Based on peer group of high-growth SaaS companies.

Advertising Multiple (EV / NTM Sales): 4.0x

Based on peer group of digital advertising leaders.

Retail Multiple (EV / NTM Sales): 0.8x

Based on peer group of large-scale e-commerce and physical retailers.

Implied SOTP Value Per Share

$280.24

Note: Calculation assumes ~$80B in net debt and 10.5B shares outstanding.

Valuation Summary: Path to $280

Our $280 price target is derived from our Base Case SOTP analysis. This approach assigns distinct, peer-based valuation multiples to Amazon's major segments, providing a more accurate picture of the company's intrinsic value. The scenarios below reflect different assumptions for segment growth and multiple expansion/contraction.

Bear Case

$245

Lower multiples on AWS (5.5x) and Ads (3x) due to macro slowdown.

Base Case

$280

Core view: AWS at 7x, Ads at 4x, Retail at 0.8x NTM Sales.

Bull Case

$325

Multiple expansion on AWS (9x) and Ads (5.5x) as growth re-accelerates.

Base Case SOTP Breakdown

Segment	NTM Revenue (Est.)	Multiple	Enterprise Value
AWS	$115 B	7.0x	$805 B
Advertising	$60 B	4.0x	$240 B
Retail & Other	$460 B	0.8x	$368 B
Total Enterprise Value			$1,413 B