Why Amazon’s Spending Spree Makes It a Must-Buy Now

Core Insights - Amazon's stock performance in 2025 was lackluster, rising only about 5%, significantly trailing the S&P 500's 16% advance and most of its peers in the Magnificent 7, including Apple, which gained 8% [2] - The underperformance is attributed to heavy capital spending and slowing cash flow generation, but strategic investments are expected to position the company for strong gains in 2026 as these efforts yield results [2] Financial Performance - Amazon's free cash flow declined to $14.8 billion in the third quarter, a 69% drop from $47.7 billion a year earlier, following a decrease from $18.2 billion in the second quarter [3] - The decline in cash flow is driven by a $50.9 billion year-over-year increase in property and equipment purchases, with cash capital expenditures reaching $34.2 billion in Q3 alone and totaling $89.9 billion year-to-date [3][7] Capital Expenditure Trends - Amazon's capital expenditure (capex) spending is characterized by cycles of heavy investment followed by periods of contraction, with the current cycle potentially being the largest yet as AI becomes central to its strategy [4] - Full-year cash capex is projected at $125 billion for 2025, a significant increase from prior levels, with management indicating further increases in 2026 to support expanding infrastructure needs [5][6] Strategic Focus - The majority of the projected $125 billion capex in 2025 is aimed at expanding Amazon Web Services (AWS), data centers, and AI infrastructure, including investments in custom silicon like Trainium 2 chips, which have generated significant revenue and grown 150% sequentially in Q3 [6][7] - Trainium 3, released in December, promises to deliver 4.4 times higher compute performance and 40% lower energy use, indicating a strong focus on technological advancement [6]