Amazon.com, Inc. (AMZN)'s third-quarter earnings gave investors two very different reasons to look at the stock: its cloud business is accelerating at a pace not seen in years, while AI spending is draining cash.
JPMorgan sees the investment as the start of a much larger opportunity, putting a $365 price target on Amazon—based on 26.5 times its estimate of Amazon's 2028 earnings. That's nearly 50% above its Oct. 29 close of $243.79.
Analyst Doug Anmuth points to Amazon's custom chips and AI services as additional growth engines, with its Bedrock platform seeing sharply higher enterprise use.
AWS Has a Much Bigger Runway
Amazon Web Services revenue rose 39.3% year over year to $46 billion in the third quarter, its fastest growth in nearly five years. That lifted AWS to a $184 billion annualized revenue run rate, while operating income climbed 55% to $17.8 billion.
CEO Andy Jassy expects AWS to grow more than 40% in both 2027 and 2028, eventually generating $1 trillion in annual revenue within five to 10 years. Its backlog — contracted work not yet recognized as revenue — reached $578 billion, up 189% year over year, giving Amazon visibility into future demand.
The Price of Building an AI Giant
Amazon spent $77.3 billion on capital investments in the third quarter and reiterated that 2026 capital expenditure will reach about $220 billion. Jassy said the company expects to spend "meaningfully more" in 2027 as it builds the data centers and servers needed to meet demand.
That investment is already showing up in cash flow. Amazon's trailing 12-month free cash flow swung to a $42.4 billion outflow, compared with a $14.8 billion inflow a year earlier, primarily because of higher spending on property and equipment.
Shares fell as much as 7% in after-hours trading after Thursday's results and over 7% again in pre-market trading on Friday, reflecting unease over spending and a softer-than-expected fourth-quarter sales outlook.
What Amazon Investors Should Watch
JPMorgan argues that the spending is justified because AWS demand is strong, capacity remains tight, and infrastructure investments can generate returns over several years.
Amazon also says servers and networking equipment can pay back in less than three years, while data centers have much longer useful lives.
Whether JPMorgan's nearly 50% upside case holds up remains to be seen.
