AWS growth and a $496 billion backlog support higher operating profit next year. Heavy 2026 capital spend still keeps free cash flow negative, so the stock only earns a modest premium.
Key points
- $496 billion of AWS remaining performance obligations at June 30, 2026, with a 6.4-year average life.
- $220 billion cash capital spend guided for 2026, up from $200 billion on memory costs.
- 13.7% operating margin in Q2 2026 versus 11.4% a year earlier, before one-time items.
The call
The $260 share price needs about $118 billion of 2027 operating profit if the stock keeps a 24.5 times multiple. That is only a small step up from my $108 billion 2026 estimate and treats the AI build as already earning full returns.
I instead model $135 billion of 2027 operating profit on $945 billion of sales. AWS still grows mid-20s as reserved capacity comes online, while retail and ads add slower dollars. The market is too pessimistic on that mix, not too optimistic on the company.
Revenue and operating income ($ billions)- Revenue
- Operating income
- My OI path
SEC filings through Q2 2026; Q3 2026E from company guide midpoint; later bars are mine
Valuation
| Item | Figure |
|---|
| 2026E operating profit | $108 billion |
| 2027E operating profit | $135 billion |
| Multiple on 2027E operating profit | 24.5 times |
| Enterprise value | $3.31 trillion |
| Net debt (debt minus cash and marketables) | $50 billion |
| 12-month target (11.0 billion shares) | $296 |
Twenty-four and a half times next year’s operating profit sits between a software-cloud multiple and a retailer multiple, which matches a business that is one-fifth AWS by sales and most of the profit. If I am right on profit and wrong on the multiple, the stock still sits near $260. That asymmetry is a buy, not a strong buy, because cash is still leaving the firm.
Operating cash vs cash capital spend ($ billions)- Operating cash flow
- Cash CapEx (gross)
SEC 10-Q and 10-K; FY26E uses $220B cash CapEx guidance
Risks
- Memory and power costs stay elevated and 2027 capital spend does not peak, which you would see in the next CapEx guide.
- AWS growth re-decelerates below 20% as long-term contracts reprice, visible in quarterly AWS sales.
- Retail unit growth slows while fuel and line-haul stay high, visible in fulfillment as a percent of sales.
What would change my mind
A 2027 cash capital guide still above $200 billion with AWS growth back under 20% would force a lower multiple and a hold.