AMZN

Amazon is compounding at scale with improving quality. FY2025 revenue grew 12.4% to $717B, but operating income (+16.6%) and net income (+31.1% to $77.7B) grew faster, evidence of real operating leverage — net margin reached 10.8% and ROE 18.9%, a long way from the -$2.72B loss in FY2022. The balance sheet is a fortress: $411B equity (+43.7%) and $86.8B cash against just ~$68B of total debt, leaving Amazon net-cash and able to self-fund its ambitions without stress. At 34x earnings and 3.7x sales the stock isn't cheap, but with EPS up 29.7% the PEG sits near ~1.1 — a full price for a clearly strengthening franchise rather than a stretched one.

The central tension is exactly what the MD&A flags: 'Our financial focus is on long-term, sustainable growth in free cash flow.' Right now that focus is on hold. Capital expenditures jumped 58.8% to $132B, so even with $140B of operating cash flow, free cash flow collapsed to roughly $8B. This is the AI/AWS data-center buildout, and the bet is that today's capex converts into tomorrow's high-margin cloud and advertising revenue. The Risk Factors are candid that this may not pan out — profitability in newer activities (including AI/ML) 'may not meet our expectations,' the investments 'are often significant,' and failure to realize the benefits 'could result in the value of those investments being written down or written off.' The forward-looking statements also single out 'resource and supply volatility, including for memory chips' — a direct constraint on the very buildout driving the spend.