UBS on Amazon: AWS Growth Should Accelerate to 38% in 2026
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UBS maintains a Buy rating on Amazon, though it trimmed its price target from $311 to $301. This adjustment reflects revised higher capital expenditure assumptions, which reduced free cash flow estimates by roughly 3%.
Amazon guided capital expenditures to approximately $200 billion for 2026, substantially exceeding both UBS expectations of $150 billion and the market consensus of $146 billion. UBS expects this aggressive spending will accelerate AWS growth dramatically, projecting it will double from 19% in 2025 to 38% in 2026. Furthermore, fulfillment obligations and backlog are anticipated to expand to approximately $400 billion by year-end. Assuming capital intensity persists, growth should remain above 30% in 2027, effectively doubling the AWS segment's revenue and operating profit over a two-year horizon.
Fourth-quarter revenue reached $213.4 billion, beating estimates despite including roughly $2.8 billion in favorable foreign exchange impacts. AWS fourth-quarter growth came in at 24%, outpacing consensus estimates of 22% to 23%. Additionally, Trainium2 chips are fully committed with 1.4 million units deployed, and demand for Trainium3 remains robust.
However, first-quarter operating profit guidance of $16.5 to $21.5 billion fell below expectations. This shortfall stems from added costs related to Amazon Leo and retail expansion, which are increasing expenses by roughly $1 billion. Despite near-term capital expenditure pressures suppressing free cash flow, UBS remains constructive. The firm highlights that 2027 GAAP EPS is estimated at approximately $14, leaving the stock trading at a significant discount to large-cap internet peers.