AMZN stock jumps, pushing Amazon past $3T valuation as AWS calms AI spending fears

Amazon's market value crossed the US$3 trillion (approx. $3.9 trillion) mark for the first time on Monday after investors rewarded the company for a stronger-than-expected earnings report that reinforced the view that artificial intelligence spending is beginning to generate meaningful returns through its cloud computing business.

Shares of the e-commerce and cloud giant climbed nearly 5% during Monday's trading session, lifting its valuation above the milestone and extending a rally that began after last week's quarterly results.

The move capped a dramatic turnaround for the company, whose shares had been under pressure for much of the past three months as investors questioned whether billions of dollars being poured into AI infrastructure by Big Tech would eventually translate into profitable growth.

AWS growth changes the narrative

Amazon had been caught in the broader selloff across technology stocks, with its shares sliding nearly 18% between their May 6 record high and the three-month low reached last month.

Those concerns eased sharply on Friday after the Seattle-based company reported its strongest cloud growth in more than four years while also raising its annual capital spending forecast.

The stock surged 15% following the earnings release and has now gained more than 25% so far this year.

The biggest catalyst was Amazon Web Services, whose revenue rose 37% to US$42.2 billion (approx. $54.4 billion) during the quarter, accelerating from 28% growth in the previous quarter and comfortably beating Wall Street expectations of roughly 31%.

Although AWS contributed only about 21% of Amazon's total revenue, the cloud division generated approximately 61% of the group's operating profit, underlining its importance to the company's earnings.

"AWS is booming," chief executive Andy Jassy said in a statement.

"Our AI and chips businesses each eclipsed run rates of more than US$25 billion (approx. $32.3 billion)."

Jassy also highlighted the scale of the business during the earnings call.

"AWS is now a US$169 billion (approx. $218 billion) annualized revenue run rate business, which, for perspective, would place it 24th on the Fortune 500 list if it was a standalone company."

Analysts say AI investments are paying off

The results helped ease concerns that Amazon's aggressive AI spending would continue to weigh on profitability.

"We're encouraged by the strength in the core AWS business, which has a high correlation with AI revenue, and we expect this relationship to further strengthen over time as more AI workloads move into full-scale production and drive additional demand for core services," JP Morgan wrote in a note.

Dan Morgan, portfolio manager at Synovus Trust, said investor concerns about AWS losing market share had largely disappeared.

"There were concerns about market share losses on AWS, but that's been put to bed now," Morgan said.

"It just gives more evidence that AWS's lead is still intact. The AI tide is rising all boats here."

Among the so-called Magnificent Seven technology companies, Amazon and Microsoft are the only firms whose heavy AI spending has been broadly welcomed by investors after recent earnings.

By contrast, Tesla, Alphabet and Meta Platforms saw investors react negatively as elevated AI investment weighed on free cash flow during the latest quarter.

Valuation still below historical levels; analysts bullish about long-term prospects

The rally has also restored Amazon's position as one of the strongest performers among large-cap technology companies this year.

While many of its biggest technology peers have struggled to generate sustained gains, Amazon has rebounded strongly after the earnings report.

The stock's valuation, however, remains well below its long-term average despite the recent surge.

Trading at roughly 25 times expected earnings over the next 12 months, Amazon remains about 44% cheaper than its average valuation over the past decade.

The company has continued to invest aggressively in artificial intelligence infrastructure alongside other technology giants.

Earlier this year, Amazon announced it would invest up to US$50 billion (approx. $64.5 billion) in OpenAI, following another investment in Anthropic disclosed in April, as competition intensifies to build AI platforms and cloud infrastructure.

Wall Street remains broadly optimistic about Amazon's long-term prospects, with the average analyst price target implying about 14% upside from current levels, according to Bloomberg data.

Joining the $3 trillion club

The latest milestone also highlights the speed at which Amazon has added value over the past two years.

It took just over two years for the company founded by Jeff Bezos in 1994 to increase its market capitalization by another US$1 trillion (approx. $1.3 trillion) after first reaching the US$2 trillion (approx. $2.6 trillion) mark in June 2024.

Amazon now joins Apple, Microsoft, Alphabet and Nvidia among the select group of companies that have achieved a market valuation exceeding US$3 trillion (approx. $3.9 trillion).

Nvidia remains the world's most valuable listed company, with a market capitalization approaching US$5 trillion (approx. $6.5 trillion).

For Amazon, the latest milestone suggests investors are becoming increasingly convinced that the billions being invested in AI infrastructure are beginning to produce tangible returns, with AWS continuing to strengthen its position as the company's primary profit engine while demand for AI-powered cloud services accelerates.