We’re Boosting Our Amazon Price Target
We are lifting our Amazon ($AMZN) price target to $325 from $310 following the company’s June-quarter results. This move reflects our thinking that Amazon should benefit as consumers contend with renewed inflation pressures, prospects for further monetization of AI, cloud, and chips as well as continued gains for its high-margin advertising business.
Helping support our line of reasoning is the rebound in July oil prices and the accelerated revenue growth at Amazon Web Services (AWS), step up in AWS margins and surge in AWS backlog. And as we’ve discussed with Meta ($META), the mid-term election cycle is expected to deliver record levels of advertising spend.
Similar to what we saw from Microsoft ($MSFT), Amazon’s reported accelerating revenue growth and solid margin expansion for its cloud segment in Q2 2026 bring additional relief to concerns about the AI and data-center buildout. Backlog at AWS climbed to $496 billion at the end of the quarter, up dramatically from $364 billion exiting March, which points to rising AI adoption and expanding usage and alleviates questions over the step up in the company’s capex levels.
During Amazon’s earnings call, management reminded investors that data-center capital is spent up to two years before monetization can begin but they generate revenue immediately upon opening. Management also addressed the market’s concern over AI spending and free cash flow sharing, “As we get a few years out and the revenue growth outpaces the incremental CapEx growth which will happen at some point, the resulting revenue, free cash flow and return on invested capital is very compelling.” That is the tonic we referred to in Thursday’s video.
Amazon also said that the revenue run rate for its chips business, which includes Trainium and Graviton chips, is over $25 billion and grew triple digits year over year in the quarter. That is a very, very nice shot in the arm for the Pro Portfolio’s positions in Marvell ($MRVL) and Broadcom ($AVGO).
Amazon’s June quarter
Amazon reported worldwide revenue of $200.6 billion, up 20% year over year, a quarter that included the timing shift of Prime Day into Q2 for most large countries, including the U.S. Operating income came in at $27.5 billion, up 43% year over year, though that figure included roughly $1.2 billion in combined benefits from tariff-related refunds and a fair-value gain on energy contracts subject to derivative accounting. Even after adjusting for that, Amazon’s operating margin still climbed meaningfully compared to the year-ago quarter. Continued growth of the higher margin businesses, AWS and Amazon Ads, as well as continued cost improvement in the North America, International, and AWS segments were the drivers behind that.
North America and International
North America segment revenue was $116.2 billion, up 16% year over year, with operating income of $9.1 billion and a 7.9% operating margin, widening from 7.5% in the year-ago quarter. International segment revenue was $42.2 billion, up 15% year over year excluding foreign exchange, with operating income of $1.7 billion and a 4.1% operating margin.
During the earnings call, Amazon detailed ongoing work to lower its cost to serve in the fulfillment network, including optimizing inventory placement, shortening shipping distances, reducing touches per package, and improving consolidation rates. The company is also expanding its use of robotics and automation and expects to more than double its fleet of robotic arms, including its Cardinal and Sparrow systems, during 2026. We see those efforts to drive productivity tempering the impact of Amazon’s ongoing effort to shrink delivery times as it aims to capture greater market share of consumer spending, including grocery.
As we touched on above, the company’s 2026 Prime Day event landed in the June quarter this year compared to the September quarter last year. The timing shift complicates year-over-year comparisons, but management shared it analysis that there was some pull forward into the June 2026 quarter. We’ll look to see if Amazon decides to pull forward its Prime Big Deals Day event from early October last year into the current quarter. Even if it doesn’t, we continue to see Amazon winning incremental wallet share heading into the year-end holiday shopping season as consumers contend with renewed inflation pressures that are weighing on their disposable spending dollars.
Amazon Ads
Amazon Ads generated $19.8 billion in revenue, up 26% year over year, with Sponsored Products remaining the largest offering and primary growth driver. Management highlighted growing discovery through agentic and conversational shopping experiences noting that shoppers who click a sponsored prompt convert to a sale 48% more often and spend 21% more on average. Management also called out continued strength in Prime Video and live-sports advertising (Thursday Night Football, NBA, WNBA and NASCAR inventory all sold out) and the rollout of Ads Agent, an AI campaign tool now in 11 countries.
Two things to call out. First that 26% growth figure for the June quarter is up from 22% the segment has been posting over the last several quarters. This suggests that, much like we saw at Meta, Amazon’s leaning into AI and video with this business is paying off. Second, that continued growth in Amazon Ads means this higher margin business is accounting for an incrementally larger piece of Amazon’s over profit picture. As that grows further, it’s another reason to think we could see further margin improvement and cash flow at the company.
AWS
Turning to AWS, the business generated revenue of $42.2 billion, up 36.7% year over year — the fifth consecutive quarter of acceleration and the fastest growth rate in 18 quarters. For some context, the segment added $4.6 billion in revenue sequentially, about 80% more than its largest-ever prior quarterly increase and now runs at a $169 billion annualized revenue rate.
AWS operating income was $16.6 billion, implying an operating margin near 39% and a meaningful gain year over year. CFO Brian Olsavsky pointed specifically to investments in software and process improvements that optimize server capacity, alongside a more efficient network built on lower-cost custom silicon and custom networking gear. Management did caution that AWS margins will continue to fluctuate with investment levels and the mix of AI versus non-AI workloads. However, our play here is when the rate of revenue growth overcomes that investment spend, driving profits and cash flow higher.
Exiting the quarter, AWS’s backlog stood at $496 billion, up dramatically from $364 billion exiting March and 2.5 times the level from Q3 2025, when Amazon first outlined its plan to double data-center power capacity by the end of 2027 versus 2025. Management said it remains on pace with that build-out, that capacity will not be sufficient to meet all 2026 demand, and that the same will likely hold true in 2027. The team also shared that demand already reserved for 2028 is “striking.”
CapEx
That leads us to the company’s capex and capex plans. During the June quarter, Amazon spent $53.1 billion in capex, primarily tied to AWS and generative AI infrastructure. Factor in the $43.2 billion spent in the March quarter, and management’s revised capex forecast of $220 billion for this year means a big step up in spending in H2 2026. Just like we saw at Meta, Alphabet ($GOOGL), and Microsoft. We see this as another reason to stay bullish on our AI and data-center plays in the Portfolio.
Even at that higher spending level, the company said it will not have enough capacity to meet all of its 2026 demand. Combined with management’s comments above, it means that, like the other hyperscalers, we’re likely to see 2027 capex at Amazon be higher year over year. This means, just like with the other hyperscalers, we’ll want to keep track of Amazon’s operating cash flow and the margins that drive it. In the June quarter, operating cash flow for the trailing 12 months hit $161.4 billion, up 33% for the same figure for the trailing 12-months ending June 2025.
Housekeeping
As we lift our AMZN price target, we will also reset our checkpoint level to $225 from $210. In terms of our current Two rating, a pullback back to the 50-day moving average near $247 would likely trigger our revisiting that rating, subject to what the forces were that led that to happen.
At the time of publication, TheStreet Pro was long AMZN, AVGO, GOOGL, META, MRVL, and MSFT.
| Symbol | Price Target |
|---|---|
| AMZN | 325 |
| Symbol | Panic Price |
|---|---|
| AMZN | 225 |
