Amazon.com Inc

Amazon.com (AMZN) demonstrated solid growth across its largest operating segments, with Amazon Web Services (AWS) notably reaccelerating at scale. This growth contributed to over 60% of Amazon’s total operating income in the second quarter. The company also provided a credible profitability roadmap for its AI investments, alleviating concerns regarding capital expenditure monetization. The positive trajectory in AWS and the strategic focus on AI investments position Amazon favorably for future growth.

Amazon's share price increased 14% during the second quarter and is up 3% year-to-date. As with our other hyperscaler investments, we believe investor concerns around the magnitude of capital expenditures behind the datacenter buildout at Amazon Web Services (AWS) continue to weigh on the stock. These concerns understate the resiliency of Amazon's business and its significant growth runway, as evidenced by the company's robust operating momentum. Increasing AI adoption has materially accelerated AWS's revenue growth profile from 20% growth in 2024 and 2025 to more than 30% this year. Likewise, Amazon's retail segment continues to take market share, with unit volumes up 15% in Q1 2026, the fastest pace since 2021. Longer term, we believe Amazon can compound earnings at a 20%-plus rate, driven by secular tailwinds from AI and rising e-commerce penetration alongside substantial retail margin expansion.

Amazon is another member of this elite group generating high returns, and we think it is being quite rational by rapidly compounding its asset base at these returns. During the quarter, Amazon grew revenue by 17% and operating income by 30%. While the bears continue to complain about Amazon's $200 billion in capex growth and dwindling free cash flow, we estimate this incremental capex will increase the 2025 total asset base by around 28%. With 30% cash flow growth on what we assume is at least 28% asset growth, we conclude Amazon is achieving at least as good, if not better, returns on capital than it has previously - yet the stock is trading near historically depressed multiples. This is another telltale sign to us that the Company's aggressive free cash flow reinvestment is very rational and that the depressed valuation presents an excellent long-term investment opportunity for us.

Amazon.com reported strong results during the first quarter. AWS revenue growth accelerated to 28%, its fastest growth rate in 15 quarters. Amazon Bedrock, a fully managed service providing secure access to leading large language models, grew 170% quarter-over-quarter. 125,000 customers are using Amazon Bedrock including 80% of the Fortune 100. Most of Amazon Bedrock’s inference demand is powered by Amazon’s internal Trainium chips. Amazon’s chips business, which consists of Trainium and Graviton, is now over a $20BN run-rate business growing triple-digits year-over-year. Amazon remains a dominant world-class company with powerful secular tailwinds in place including its e-commerce penetration, digital advertising growth, and the transition to the cloud.

We have established a significant position in Amazon, making it the second-largest holding in our portfolio. This decision was primarily driven by the strong tailwinds in the AWS business, which saw growth rates climb to 28% YoY in Q2’26. This segment remains highly profitable. Additionally, we view Amazon as the only meaningful competitor to Starlink with a specific focus on serving the enterprise market. Their Advertising business also continues its robust expansion, reaching a $70B annual run rate. In the Retail sector, the US business is growing with improving operating margins, while international retail shows even higher growth rates and a path toward better profitability.

Amazon is mentioned as part of a broader discussion on hyperscaler capital expenditure and its implications for the semiconductor sector. The letter notes that Amazon lifted its 2026 capex outlook to roughly $210bn, reflecting a significant increase in expected capital expenditure among major cloud providers. However, there are concerns regarding the sustainability of these investments and their potential impact on free cash flow, as expectations for FCF have fallen dramatically across the sector. The discussion highlights the challenges faced by hyperscalers, including the need for adequate returns on increased capital investments.

Amazon is mentioned as part of a broader discussion on hyperscaler capital expenditure and its implications for the semiconductor sector. The letter notes that Amazon lifted its 2026 capex outlook to roughly $210bn, reflecting a significant increase in expected capital expenditure across major cloud providers. However, there are concerns regarding the sustainability of these investments and their potential impact on free cash flow, as expectations for FCF have fallen dramatically. The discussion highlights the challenges faced by hyperscalers, including the need for adequate returns on increased capital investments.

Amazon is positioned to benefit significantly from the rapid adoption of artificial intelligence (AI) and cloud computing, which are driving exponential demand for computing power and efficiency tools. The company's AWS cloud and data-centre infrastructure are critical components of this trend, making it a key player in the technology sector. Additionally, Amazon is trading at reasonable valuations given its strong growth prospects, which positions it well for future performance as the market adjusts to current valuations.

We believe Amazon.com is well-positioned as a large robot operator with over 750,000 warehouse robots and the Zoox robotaxi. Additionally, AWS plays a crucial role in training the AI systems that operate these robots, indicating a strong alignment with the emerging Physical AI theme. This positions Amazon favorably for future growth as AI technology proliferates into the physical world.

Amazon (AMZN) held up well in a period where inflationary pressures weighed more heavily on consumer cyclical competitors.