JP Morgan lowers Amazon's target price to $265, short-term profits under pressure

JP Morgan published a research report indicating that Amazon (AMZN.US) will significantly increase its capital expenditures again in 2026, completing the layout of the three capital expenditure giants. The $200 billion capital expenditure has a certain impact and exceeds Google's (GOOGL.US) $175 billion to $185 billion and Meta's (META.US) $115 billion to $135 billion. However, in terms of growth rates for the fourth quarter, Amazon's capital expenditure grew by 30%, Google's by 66%, and Meta's by 58%. Notably, about $45 billion is related to store operations. However, there is no doubt that the approximately $70 billion increase this year is primarily driven by AWS and artificial intelligence, which is actually a positive phenomenon.

Amazon currently has $57 billion in net cash, between Google's $80 billion and Meta's $23 billion. However, as a business with relatively low margins, Amazon's free cash flow for 2025 is projected to be $11 billion, far below Google's $73 billion and Meta's $44 billion. Therefore, Amazon's free cash flow is almost certain to turn negative this year, and the extent may be quite large, with the bank expecting a free cash flow of negative $36 billion. Amazon last burned cash in 2021 and 2022 due to pandemic logistics construction, but achieved a significant rebound in 2023 and 2024 through the rationalization and regionalization of its network layout. Therefore, the bank believes that Amazon is willing to endure short-term profit pressure, as it did years ago, to drive significant long-term growth opportunities. The bank maintains an "overweight" rating on Amazon but lowers the target price from $305 to $265, based on a 29 times price-to-earnings ratio calculated on an earnings per share of $9.04 for 2027