Amazon’s AWS Delivers Strongest Growth Since 2022 with $200 Billion AI Backlog
Amazon’s AWS segment posted its fastest revenue growth since 2022 as AI-driven demand surged, building a $200 billion service backlog entering 2026. Management’s heavy spending on cloud infrastructure underscores confidence in further expansion, supporting bullish investor sentiment on future earnings.
1. Valuation and Earnings Outlook
Amazon.com, Inc. is trading at a projected FY2028 forward P/E of 19, one of its lowest levels in over a decade despite consensus estimates forecasting a compound annual EPS growth rate north of 15% through 2028. Over the past twelve months, EPS revisions have been upgraded in ten out of the last twelve quarters, outpacing the stock’s modest single-digit share price appreciation. Analysts on the Street maintain an average price target that implies approximately 20% upside from current levels, and nearly 75% of recent EPS revisions have been positive, suggesting room for further target upgrades.
2. AWS Acceleration and Profit Contribution
Amazon Web Services continues to be the company’s primary profit engine, contributing roughly two-thirds of operating income in the most recent quarter. AWS revenue grew 20.2% year-over-year to $33.0 billion in Q3, an acceleration from 17.5% in Q2, driven largely by increased enterprise adoption of its AI-optimized compute instances. A reported $200 billion backlog of committed cloud contracts underlies management’s 2026 guidance, which calls for double-digit AWS growth and margin expansion through improved infrastructure utilization.
3. AI and Operating Leverage Investments
Management has earmarked a 50% year-over-year increase in capital expenditures—about $50.9 billion—to support data centers, custom silicon development and LEO satellite network deployment under Project Kuiper. These investments are expected to drive substantial operating leverage: operating cash flow rose 16% to $130.7 billion over the past 12 months, even as free cash flow contracted due to front-loaded capex. Expected improvements in server utilization and AI-driven automation should bolster free cash flow conversion beginning in FY2026.
4. Long-Term Growth Catalysts Beyond Core Retail
Beyond AWS and AI, Amazon’s emerging segments include pharmacy services, advertising and satellite broadband. The newly relaunched Amazon Pharmacy has broadened access to GLP-1 therapies with transparent pricing, while the advertising unit—now generating north of $40 billion annually—benefits from AI-enhanced targeting capabilities. Project Kuiper’s initial satellite launches, scheduled for late 2026, could unlock a multi-billion-dollar revenue stream and further diversify Amazon’s high-margin offerings.