At first glance, Amazon’s (AMZN) stock does not appear cheap. As of this writing, the stock is trading at approximately 35 times earnings per share, with a forward price-to-earnings ratio of about 31. For a company in the midst of one of the largest spending cycles of the AI era, this is hardly an attractive valuation multiple.
However, this perspective overlooks several important elements of the bullish case for Amazon stock. In fact, once you factor in Amazon’s growth momentum in key areas and its attractive price-to-cash flow ratio (price to operating cash flow), its valuation may be cheaper than it appears on the surface.
First, investors should pay attention to the impressive development trajectory of Amazon’s business. In the fourth quarter, the company’s consolidated net sales increased by 14% year-over-year to $213.4 billion; its cloud computing business, Amazon Web Services (AWS), saw revenue grow by 24% to $35.6 billion, accelerating from the 20% growth rate in the third quarter.
This rapidly growing business is making a significant contribution to the company’s profits. AWS generated $12.5 billion in operating income in the fourth quarter, accounting for half of Amazon’s total operating profit. From a broader perspective, AWS accounted for only 18% of full-year sales but contributed approximately 57% of operating profit.
The strongest reason for optimism about Amazon stock over the next year and beyond is that AWS appears to be gaining momentum rather than slowing down. On Amazon’s fourth-quarter earnings call, management stated that AWS growth reached its fastest pace in 13 quarters. More importantly, the business is currently constrained by supply. As long as Amazon can build out sufficient capacity, its cloud computing business may accelerate further.
Furthermore, the price-to-earnings ratio is not the right method for assessing the attractiveness of Amazon stock today. Over the past 12 months, Amazon’s operating cash flow grew by 20% in 2025 to $139.5 billion. This means the stock’s price-to-operating-cash-flow ratio is about 19 times — far more attractive than a P/E ratio in the 30s. Moreover, before the company’s exceptionally large reinvestment cycle has fully generated returns, this ratio may provide a clearer picture of the company’s current profitability. It is better to examine the stock using the price-to-cash flow ratio, which measures the company’s stock price relative to its operating cash flow (cash flow from operations before capital expenditures).
Admittedly, as the current investment cycle gradually becomes a thing of the past, depreciation expense growth will eventually slow, and demand is expected to benefit from today’s investments. Amazon’s capital expenditure as a percentage of revenue will decline while revenue growth remains strong — at which point profits could see a sharp reversal.
Investors should not expect a dramatic performance from Amazon stock over the next year. This is already a massive company, and while its stock is attractive, it is by no means cheap. However, a compound annual growth rate of 12% seems reasonable. To achieve such expectations, Amazon only needs to consistently demonstrate that AWS’s growth rate can remain high (or even accelerate further), providing evidence that Amazon’s massive spending is paying off.
Based on a stock price of approximately $248 at the time of this writing and a 12% compound annual growth rate, the stock price would reach about $278 one year later. Five years later, the same compound growth rate would bring the stock price to $437. Of course, risks remain, and this is only a rough estimate. But given the notable acceleration in AWS’s fourth-quarter revenue and the company’s broad business momentum, this is a reasonable expectation.
