Anthropic’s recent term sheet for a $10 billion funding round at a $350 billion valuation, led by Coatue and Singapore’s GIC, underscores the intensifying competition in generative AI. Amazon, which has already invested multiple billions in Anthropic, stands to benefit from the startup’s accelerated R&D in large language models. This financing follows Microsoft’s announced up to $5 billion commitment and Nvidia’s up to $10 billion pledge, signaling deep-pocketed support for Anthropic’s Claude family. For Amazon Web Services, closer integration with Anthropic’s models could enhance AWS AI service offerings, strengthen enterprise customer retention, and drive incremental revenue in the high-growth AI infrastructure segment.

In the trailing twelve months through the third quarter of 2025, Amazon’s capital expenditures surged to $115.9 billion from $53.97 billion in Q2 2024, reflecting aggressive investment in data centers, custom AI chips (Trainium3), and fulfillment automation. This capex growth has applied downward pressure on free cash flow, which declined to $14.78 billion from $52.97 billion over the same period. While bears highlight the sharp capex increase, management argues that these outlays will underpin long-term margin expansion by reducing reliance on third-party hardware and by embedding AI throughout logistics and cloud operations.

During Q3 2025, AWS generated $33 billion in revenue, up 20% year-over-year, and delivered a 34.6% operating margin, accounting for approximately two-thirds of Amazon’s operating income. Advertising services also posted robust 24% revenue growth to $17.7 billion, with estimated operating margins in the 30–40% range. In contrast, North America e-commerce sales of $106.3 billion grew 11% but carried a low margin of 4.5%, while the international segment’s 14% growth came with just a 2.9% margin. The outsize profitability of AWS and ads is key to offsetting narrow retail margins and to supporting the stock’s valuation relative to its tech peers.

With AWS and advertising set to accelerate operating profit growth in 2026, investors should weigh the near-term cash-flow impact of elevated AI capex against the medium-term earnings leverage from high-margin segments. Amazon’s price-to-sales ratio remains below that of its largest tech peers, suggesting relative valuation support. Meanwhile, advances in proprietary chips and partnerships—particularly the deepening Anthropic relationship—could further differentiate Amazon’s AI infrastructure offering. For long-term holders, the convergence of e-commerce scale, cloud dominance, and AI innovation represents the core thesis for renewed outperformance.