Amazon (AMZN)

By both methods, the value today (DCF $276 · Multiples $263) exceeds the market price ($260).

Today — fairly valued: at $260 trades ~1.4% below its value discounted to today (~$263); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($328) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$163.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($260) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (12.1%/year) is in line with our base case (13.5%/year) → the price is consistent with the projection.

That growth implies ~$133 bn of owner earnings in year 5 (vs ~$141.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Each segment is projected and valued with its own metric and its own multiple (Commerce EV/NOPAT · Payments EV/EBIT · Credit lender P/E), and they are added up by year → the value curve. The multiple compresses toward the terminal (at 3 years there is more growth still ahead), so the terminal reproduces the SOTP. In edit mode, the metrics and multiples of each part can be adjusted.

Sum of the parts by segment, year by year: each line with its own metric and its own multiple (§5 bis), added up by year → the value curve. It is a VIEW that coexists with the waterfall and does not set the verdict: the terminal reproduces the record's sum of the parts. Both endpoints come from filings, not from assumptions. Year 0 is segment operating income for the TTM to June 2026, chained from levels (fiscal year 2025 from the 10-K plus the first half of 2026 less that of 2025, from the 10-Q): AWS 54.681 · North America 33.651 · International 5.380, which add to 93.712 — exactly the consolidated operating income the record already declared, meaning the chaining closes on its own. Year 5 is the sum-of-the-parts metrics (144.325 · 59.683 · 13.022). The multiples compress toward the terminal (at 3 years there is more growth still ahead) and the resulting blend —13.4× bear · 16.5× base · 19.6× bull— reproduces the one the record declares. Cash does not accumulate by segment: cloud capex is redeployed within AWS itself.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $328 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $260, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $328 in 5 years and a required return of 4.5% annually, the maximum to pay today is $263. Against the current market price ($260), the margin of safety is 1.4% (trades below the maximum → there is margin) and the total return at that price would be 4.8% annually.

• Sum of the parts. AWS (cloud) + North America (retail + advertising) + International (retail), each with its own metric and multiple. Advertising is embedded in commerce (not separated: Amazon does not report its operating income).
• P/E is misleading. At ~30× it looks expensive, and that net income is on top inflated by equity revaluations; on operating income it trades at ~30× and compresses to ~13× over five years.
• The DCF converges. The DCF (at the method's risk-free rate, no-growth terminal) gives a value today below the price: the discount is scarce and falls well short of the required margin, even though the stock compounds value over five years.
• Margin of safety at the end. At ~$260 the base return (~+5%) falls short of the required average return (10%): it compounds value over five years, but the discount today falls well short of the required margin of safety.
• Reverse DCF. The price discounts operating-income growth consistent with the base case — there is no exaggerated expectation baked in, but neither is there an ample margin.
• Sensitivity — AWS and capex. Value is highly sensitive to AWS's multiple and to the AI capex paying off; if the cloud disappoints or the capex is malinvestment, the consolidated multiple re-rates.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (94%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Strong, predictable cash flow. Operating cash flow (~$148.5bn TTM) is enormous; free cash flow is sunk (−$2.5bn) by AI growth capex, not by operating weakness.
• Return on capital. Above the 10% bar, but depressed today because the AI capex does not yet pay off; AWS has a high return, retail a lower one — the incremental is what matters.
• Creates economic value. AWS and advertising generate returns well above the 10% bar; the consolidated figure is diluted by the thin retail margin and the ongoing capex.
• The net income trap. GAAP net income is inflated by unrealized gains on equity investments (~$15bn TTM from Anthropic/Rivian): value by operating income, never by P/E over the reported net figure.
• The free cash flow trap from capex. Reported free cash flow is negative because of voluntary growth capex; the correct metric is operating income (which expenses the real spending), not today's EV/FCF.
• Accounting distortions to watch. (1) net income inflated by equity revaluations; (2) growth capex sinks free cash flow; (3) stock-based compensation (~$19.8bn, which the cash flow adds back) with no buyback to neutralize it.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Revenue is commerce (unit volume × price in 1P, plus the commission rate on third-party volume in 3P) + advertising (impressions × price) + AWS (consumption × price, with contractual price tiers) + Prime (members × fee). Over the trailing twelve months commerce grew +12% in North America and +16% in International, with advertising at +22% in 2025, and AWS +28% (+37% in the quarter) with the margin expanding again; capex sustains AWS's AI infrastructure. AWS's contracted backlog ($496bn at Jun-2026, 6.4-year average life) reflects the signed multi-year commitments — multi-gigawatt, with the two leading AI labs — and is the leading indicator of cloud revenue.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real growth, not nominal. Yes — +12% FY25 (TTM +16.6%) in USD driven by volume (units, AWS consumption) and high-margin mix (advertising, cloud), not by a currency effect.
• Where the engine comes from. Commerce (~81% of revenue) grows a steady ~+10%; AWS (~18.5%) reaccelerates to +28% and advertising +22% — the marginal engines of value.
• Driven by volume and price. Commerce: units × price + 3P commission. AWS: consumption with a $496bn contracted backlog. Advertising: impressions × price. Quality growth.
• Realistic deceleration. The base declines from ~+13% to ~+7% by the fifth year, with AWS decelerating from +28% toward ~+16% as it gains scale.
• Reinvestment runway. Wide: the AI capex (~$200bn) builds AWS's infrastructure; the test is whether it earns above the cost of capital — the live question.
• AWS reacceleration. AWS went from +20% (2025) to +28% (latest quarter), with the contracted backlog jumping +49% in one quarter — the engine of the bull case, backed by signed revenue.

• Relevant in 10 years / recurrence. Yes — e-commerce, the cloud and digital advertising are structural habits; AWS and Prime have contractual and subscription recurrence.
• Market share / cost. Leader in online commerce outside China and number one in the cloud (~30%). Logistics density and compute scale grant a cost advantage; retail remains thin-margin.
• Pricing power. Strong in AWS (contracts, proprietary silicon) and in advertising (a high-margin auction); in 1P commerce the pricing power is limited (low-cost competition).
• Operating leverage. High: the consolidated margin rose from 6.4% to 11.2% in two years as AWS (35% margin) and advertising scaled; the AI capex masks it today.
• Capital cycle / competition. AI attracts massive capital; Amazon responds with capex of ~$200bn — the risk is a spending race that compresses returns if demand disappoints.
• Behavior in a recession. Discretionary commerce is cyclical (consumers cut back), but AWS (contracts), Prime (subscription) and direct-response advertising make it more defensive than a pure retailer.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.1x
• ✓Interest coverage (EBIT / interest)28.1x
• !Liquidity (current ratio)1.03×
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 94% of ROIC
• !Value creation (ROIC − 10% bar)+3pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.3x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 2.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. Cash and liquid investments of $143.1bn against $136bn of debt (bonds + finance leases) → barely positive net cash (~$7bn), after a debt jump of +$53.8bn in one quarter.
• Ample coverage. Interest expense (~$3.3bn TTM) is trivial against operating income ($93.7bn TTM) — coverage of tens of times.
• Operating leases. On top of the debt, ~$91.6bn of operating leases (fulfillment and data centers), already expensed in operating income — the balance sheet is leveraged by the infrastructure, but the risk is return, not solvency.
• Cash generation. Operating cash flow (~$148.5bn TTM) is enormous, but capex (~$151bn) consumes it entirely today → free cash flow −$2.5bn; solvency rests on the cash flow and on access to credit.
• Investment phase, not deterioration. The jump in debt and capex is voluntary investment in AI, not a balance sheet in trouble; free cash flow inflects once capex normalizes.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Reinvests the entirety of the cash flow into AI capex (~$200bn) and strategic bets at a historically high return; the test is whether the incremental capex pays off. No dividend and no buyback.
• Alignment / skin in the game. The founder (Bezos) owns ~8.8% with no salary and no new shares — long-term alignment. The chief executive officer (Jassy) has a modest stake; the minority shareholder has no counterweight.
• Capital return. It does not return capital: it reinvests everything. Consistent with the investment phase, but it implies the shareholder depends entirely on the capex creating value.
• Integrity / communication. It quantifies the capex and the losses with transparency; the forward guidance for capex (~$200bn) is explicit. To watch: related-party transactions with the founder (Blue Origin, his AI company).

• Reported cash flow is optically sunk (−$11.6bn TTM) by AI growth capex ($173.0bn TTM, above an operating cash flow that grew 33%); anyone looking at the headline cash yield sees a stock with no flow, when operating income is compounding at double digits.
• GAAP net income is distorted by unrealized gains on equity investments — $53.4bn pre-tax in a single quarter, primarily from Anthropic — and the distortion now runs in the most misleading direction: it inflates earnings and makes the P/E look cheap exactly when the multiple on clean operating income says otherwise.
• The malinvestment fear: invested capital that grew ~$250bn in a year, with the revenue that justifies it still to come, is enough for the market to discount the return risk even though the contracted backlog backs it.
• The commerce business is thin-margin and cyclical (exposure to discretionary consumption, tariffs), which penalizes the consolidated multiple even though AWS and advertising are the real value.

The gap between perception and reality exists and has a clear direction: the market extrapolates the capex drag and the net income noise while AWS's contracted backlog jumps to $496bn and AWS's margin expands again. What does not suffice is the price: at ~$260 and ~30× operating income, the analytical advantage lies in understanding the business, not in the discount — the quality is paid for almost in full and the margin over the value today is thin.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -6%/year (-28% total): the margin of safety protects the downside. The bull (+14%/year, +91% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• AI capex malinvestment. The ~$200bn capex in 2026 (with free cash flow already negative and AWS's margin giving up ~1.6 points); if the incremental return falls below the cost of capital, free cash flow stays depressed and the multiple re-rates to cash.
• Cloud competition. AWS grows slower than Azure (+40%) and Google Cloud (+63%); if it loses share or AI demand disappoints, the value engine stalls.
• Thin commerce margin. North America (~6.9%) and International (~2.9%) are exposed to a consumption recession, tariffs and low-cost competition (Temu, Shein).
• Regulation / antitrust. Litigation with the competition authority (settled in 2025 with a $2.5bn charge) and global antitrust scrutiny over the marketplace and the cloud.
• Governance / related parties. Related-party transactions tied to the founder (an agreement with Blue Origin, his new AI company flagged as a potential conflict) and an alignment concentrated in Bezos.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 13% above the 10% bar, but the margin is limited (+1%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 14% at a multiple/growth of 2.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 13% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 12%, in line with our 14%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +14%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: efficient scale, network effects, switching costs, cost advantage, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 12%, within what we project (14%) — the story squares with the numbers.