Amazon Stock: AWS Accelerates, the Market Pays Less for It
AMZNAmazon.com, Inc.
Hybrid: SOTP, DCF & Graham-Dodd
Gross margin of 51.4% (below 60%) and three segments with very different margins (AWS 39%, retail 4–8%) → sum-of-the-parts as the primary model. Result: SOTP $161 / 224 / 287 (previously 156 / 217 / 279), Graham-Dodd $295, FCF DCF $57–198.
WACC explained → · DCF valuation explained → · Sum-of-the-Parts explained → · Reverse DCF explained →
Update After Q3 Results on Oct 29
This page replaces the Oct 23 analysis. Amazon reported after the close: close $243.79 (−4.2%, dragged down by Alphabet), then about $227 (−7%). What became of our Oct 23 points:
- Low bar – confirmed. Operating income of $28.1bn beat the $22.5–26.5bn guide, record margin 13.9%. Revenue of $201.9bn at the top end. EPS, however, $1.89 versus $1.96 (prior year included an Anthropic book gain).
- AWS momentum – confirmed. AWS $46.0bn (+39% after +37%), margin 38.7%. CEO Jassy expects growth above 40% in 2027 and 2028.
- Capex commentary – partly. 2026 confirmed at about $220bn, no figure for 2027. Twelve-month free cash flow fell from −$7.6bn to −$42.4bn; advertising ($19.6bn, +11%) missed expectations.
- Chart test at $243–245. Hit exactly at the close (SMA200 $243.38), broken after hours.
Verdict: The thesis delivered, the market punishes the cash flow. The price already sits in the $222–229 zone, where the daily Elliott target, the weekly invalidation and the 61.8% Fibonacci level meet – and the weekly count is a counter-trend one, where invalidation is more likely than the target.
Fundamentals vs. Technicals
Fundamentals: record margin, deeper cash-flow trough
Operating margin up five quarters in a row (9.7% → 13.9%), AWS delivers 63% of segment profit. Revenue +12% (the Prime Day shift into Q2 costs ≈ 4 pp). Q3 capex $77.3bn, twelve-month free cash flow −$42.4bn against $168.3bn of operating cash flow.
Technicals: below the SMA200, weekly against the trend
Price below the SMA200 ($243.30) and SMA50 ($254.34), RSI 31.5, Bollinger position −35%: the breakout from the narrow bands went lower. Daily Elliott wave 3 down (target $222.44), weekly medium term wave 2 up only as a counter-trend count – invalidation at $226.16 (54.6%) is more likely than the $287.20 target (40.5%).
Indicators based on the Oct 29 after-hours price (provisional, not a regular close).
Valuation: All Models at a Glance
| Model | Bear | Base | Bull | Base vs. price |
|---|---|---|---|---|
| SOTP (Q3 segment EBIT annualized) | $161 | $224 | $287 | −1.3% |
| DCF (FCF-based, WACC 10.9%) | $57 | $110 | $198 | −51.6% |
| Graham-Dodd (fwd EPS $10.43) | – | $295 | – | +30.0% |
WACC: risk-free rate 4.98%, beta 1.46, equity risk premium 4.46% → cost of equity 11.47%, WACC 10.86%. SOTP on Q3 segment income ×4 (AWS 71.2, retail $41.2bn) with unchanged multiples; previously $156 / 217 / 279. DCF on TTM revenue of $797.5bn with FCF margin −5.3% → 7 / 9.5 / 12% (method standardized, only partly comparable with Oct 23); the price needs a ~20% target FCF margin. AWS accounts for about 71% of value in the SOTP base. The Anthropic stake is not valued separately.
Key Chart Levels
Decision zone: daily Elliott target ($222.44), weekly invalidation ($226.16), weekly 61.8% Fibonacci ($227.70) and weekly SMA100 ($228.70); after hours the price sits in this zone. Resistance 1: SMA50. Resistance 2: all-time high, also the weekly Elliott target. Chart levels, not a trading recommendation.
Context Check (Macro)
The VIX has fallen from 19.8 to 17.2 since Oct 23 – a calmer backdrop. For Amazon (beta 1.46), a VIX spike around the US election on Nov 3 remains the main short-term headwind. The US 10-year yield (4.98%) makes the valuation rate-sensitive because of the heavy capex.
The market is currently valuing AI investment by cash flow – Alphabet fell 12.6% the day before. Retail remains cyclical. Next catalyst: Q4 results with the 2027 capex outlook, early February 2027 (date unconfirmed).
The Devil's Advocate
“AWS is growing faster than a week ago – and is still valued at 24x instead of 29x. Who is right, the market or the numbers?”
Record margin, own guide beaten by $1.6bn, AWS accelerating. The weakness in advertising and retail is largely calendar-driven (Prime Day).
After hours the price is only about 1% above the base case ($224); on Oct 23 the gap was 14%.
Twelve-month free cash flow −$42.4bn, about $112bn of new debt so far in 2026. Every FCF DCF sits far below the price – value depends almost entirely on the AWS multiple.
Interactive SOTP Calculator
| Item | Value | ||
|---|---|---|---|
Base: Q3 operating income ×4 – AWS $17.8bn, retail (North America 8.7 + International $1.6bn), 10.75bn shares. Net financial position and the Anthropic stake are left out for simplicity. Bear 18x / 11x → $161, base 24x / 17x → $224, bull 30x / 23x → $287. Try it: with 17x for retail, the $243.79 close needs about 27x for AWS, the after-hours price (≈ $227) about 24x.
| Market cap | ~$2.44tn |
| Forward P/E | ≈ 21.8x |
| P/E range 2021–25 | 31.7–51.5x |
| EV/EBITDA FY25 (close) | 15.3x |
| Op. margin Q3/26 | 13.9% |
| AWS margin Q3/26 | 38.7% |
| FCF 12 months | −$42.4bn |
| Capex Q3/26 | $77.3bn |
| Beta | 1.46 |
| 12M performance | −1.4% |
| Close Oct 29 | $243.79 (−4.2%) |
Amazon has an extremely strong baseline since 1997: the state “below SMA200, neutral RSI” (n = 2,148) trails it by −2.1 / −3.1 / −4.5 pp after 5/10/20 days. The daily Elliott count from Oct 23 (counter-trend, invalidation $244.30) failed, as expected with 54% probability; the new daily count shows wave 3 down (target $222.44, 52.8%), while the weekly count (wave 2 up, target $287.20) is now a counter-trend count: 40.5% target rate versus a 59.0% baseline, and the invalidation at $226.16 is the more likely scenario at 54.6%.
- Full QualiStocks research report (as of Oct 29, 2026, follow-up to Oct 23)
- Prices: yfinance/FMP through the Oct 29, 2026 close; after-hours price $226.99 (yfinance/FMP, about 5:45 pm ET), indicators computed on it
- Fundamental and analyst data: Financial Modeling Prep
- Segment data & guidance: Amazon Q3/2026 report (Oct 29, 2026)
Position disclosure: at the time of publication, the author holds no position in AMZN.
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