Amazon: AWS reacceleration and the retail margin lever
Two things are happening at once: cloud growth is reaccelerating, and the retail business is finally showing operating leverage. Either alone would justify a look; both together make this my highest-conviction large-cap idea for the year.
Sample research report used to test the layout. Delete before launch.
Thesis
The cloud business is reaccelerating after two slow years, and the retail business has cut its cost to serve for three quarters in a row. Consolidated operating margin is heading somewhere it has never been, and I do not think estimates reflect it yet.
Catalysts
- Cloud growth printing above the prior quarter for a third straight time.
- Retail operating margin above five percent.
- Advertising revenue, which is high-margin and growing faster than the company average.
Risks
- Capital spending for the cloud build-out, which is rising fast and could delay the margin story.
- Consumer weakness hitting retail volume.
What would prove me wrong
Retail margin rolling back over while capex keeps climbing. That is the combination where the operating leverage story breaks.
Position
Full position, held since January. Adding only on a pullback to the rising 100-day average.