Bank of America resets Amazon stock price target after earnings
Amazon (AMZN) reported its Q4 earnings on February 5. The earnings spooked investors and sent the stock tumbling, which was already caught by the wider tech sell-off, trading 9% lower at the time of writing, Friday morning, Feb. 6, according to Yahoo Finance. What alarmed the investors was ...
Amazon (AMZN) reported its Q4 earnings on February 5. The earnings spooked investors and sent the stock tumbling, which was already caught by the wider tech sell-off, trading 9% lower at the time of writing, Friday morning, Feb. 6, according to Yahoo Finance.
What alarmed the investors was something Amazon President and CEO Andy Jassy said in the earnings release. “With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites, we expect to invest about $200 billion in capital expenditures [capex] across Amazon in 2026, and anticipate strong long-term return on invested capital.”
To understand the full weight of the $200 billion in capex, we have to look at 3 key things:
- Amazon ended the period with cash, cash equivalents, and restricted cash of $90.1 billion.
- Net income for the full year 2025 hit $77.7 billion, an increase of about 31%.
- In its Form 10-K, the company states: “As of December 31, 2025, we had long-term debt with a face value of $68.8 billion, including the current portion, primarily consisting of fixed rate unsecured senior notes.”
Even if we assume that net income will grow at the same rate, Amazon would need to raise debt in order to hit that magic number of $200 billion.
This is why investors are panicking. Photo by Bloomberg on Getty Images
Bank of America lowers Amazon price target
Following the report's release, Bank of America analysts Justin Post and Steven McDermott updated their view on Amazon stock.
They noted that the company’s forecast of $200 billion in total capex is well above Wall Street's estimate of $148 billion.
Analysts raised revenue estimates for Q1 by $500 million to $177.4 billion, but lowered the operating profit estimate by $1.2 billion to $21.2 billion. They also changed their estimates for revenue, profit, and GAAP EPS for 2026 to $812 billion, $100 billion, and $7.67, respectively, from $801 billion, $101 billion, and $7.75, respectively.
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Post said that while the capacity ramp will add margin volatility in future quarters, he believes this capacity will be fully utilized as part of the AI business transformation across industries, enabling Amazon to maintain competitiveness in a very attractive sector.
In a research note shared with me, Post reiterated a buy rating and lowered the target price to $275 from $286, due to lower AWS multiple reflecting more potential margin uncertainty, and software as a service sector multiple compression.
The target price is based on his sum-of-the-parts analysis that values AWS at 8x 2027 sales, first-party retail at 1.0x, third-party retail at 2.5x, and advertising at 5.0x. Post’s price target implies 3.3 times blended price to sales ratio, 12 times 2027 EBITDA, and 29 times 2027 EPS.
Analysts noted downside risk factors for Amazon:
- Increasing competition from offline and local retailers
- AWS client cost optimization impact on revenues and margins
- Regulatory pressure on the third-party marketplace
They also noted that the stock has been subject to heavy volatility in the past, based on margin trends, and that this volatility could increase due to economic uncertainty.
Amazon is betting on Trainium and a huge backlog, but there is a catch
Amazon launched its massive AI compute cluster, Project Rainier, in October 2025. The cluster consists of Amazon’s custom Trainium2 AI accelerator chips. The project was built for Anthropic, and the company is training its AI model on it.
During the earnings call, Jassy mentioned it and said the cluster consists of about 500,000 chips, adding that the number will continue to increase. Project Rainer is important to know about when considering Amazon’s backlog.
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According to Jassy’s comments during the earnings call, Amazon’s backlog is at $244 billion. He didn’t specify how many customers make up that backlog and which services it involves, just that it is a mix of AI and core AWS.
But since we know about the massive size of Rainer, it is very likely that a significant part of the backlog comes from Anthropic. There is also a lot of OpenAI in that backlog, for sure.
Amazon launched a new, improved version of its custom AI chips, Trainium3, in December.
Jassy said during the earnings call that the chip has just started shipping. It is supposed to be 40% more price performant than Trainium2.
“We expect that nearly all of that supply will be committed by somewhere around the middle of this year, and we’re just in the process of building Trainium4,” he added.
The catch here is that OpenAI and Anthropic have yet to become profitable. If the majority of capex goes to building capacity for the two unprofitable companies, and they then go bust, what will Amazon do with that capacity?
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