Amazon Stock Analysis (AMZN): AWS, Margins & Cash Flow 2025

Executive Summary

Amazon reported $716.9 billion in net sales for FY2025, representing 12% year-over-year growth. Operating income reached $80.0 billion, up from $68.6 billion in FY2024. Net income totaled $77.7 billion, or $7.17 diluted EPS, compared with $59.2 billion and $5.53 diluted EPS in FY2024.

Operating cash flow increased to $139.5 billion (from $115.9 billion), while free cash flow declined to $11.2 billion (from $38.2 billion) due to a substantial rise in capital expenditures. Net purchases of property and equipment increased to $128.3 billion in FY2025 versus $77.7 billion in FY2024.

The investment debate centers on whether AWS-driven profitability and advertising growth sufficiently justify elevated capital intensity tied to AI and infrastructure expansion.

Segment Performance

North America

Net sales: $426.3 billion (+10% YoY)
Operating income: $29.6 billion
Operating margin (TTM): approximately 6.9%

North America remains Amazon’s largest revenue base but operates at materially lower margins than AWS.

International

Net sales: $161.9 billion (+13% YoY)
Operating income: $4.7 billion
Operating margin (TTM): approximately 2.9%

International profitability remains modest but positive, reflecting improved cost discipline relative to prior years.

Amazon Web Services (AWS)

Net sales: $128.7 billion (+20% YoY)
Operating income: $45.6 billion
Operating margin (TTM): approximately 35.4%
Q4 AWS sales: $35.6 billion
Q4 AWS operating income: $12.5 billion
Q4 AWS operating margin: 35.0%

AWS contributed roughly 57% of consolidated operating income in FY2025 despite representing approximately 18% of total revenue. Profit concentration remains significant.

Revenue Mix Breakdown (FY2025)

Online stores: $269.3 billion
Physical stores: $22.6 billion
Third-party seller services: $172.2 billion
Advertising services: $68.6 billion
Subscription services: $49.6 billion
AWS: $128.7 billion
Other: $5.9 billion

Advertising services increased from $56.2 billion in FY2024 to $68.6 billion in FY2025 — a $12.4 billion increase (~22% YoY growth). Advertising is among Amazon’s highest-margin revenue streams.

Operating Leverage and Margin Structure

AWS operating margin (~35%) is approximately:

5× North America margin (~7%)
12× International margin (~3%)

Given AWS produced $45.6 billion of operating income out of Amazon’s $80.0 billion consolidated total, incremental AWS margin expansion materially impacts consolidated earnings.

North America operating income improved from $25.0 billion to $29.6 billion year-over-year, reflecting structural retail efficiency gains.

Capital Expenditure and Infrastructure Investment

Property and equipment additions in FY2025 totaled $142.4 billion, up from $85.8 billion in FY2024.

Segment-level 2025 property additions:

AWS: $96.5 billion
North America: $35.9 billion
International: $7.6 billion
Corporate: $2.3 billion

AWS represented approximately 68% of total property additions in FY2025.

The year-over-year increase in capital expenditures was primarily tied to artificial intelligence infrastructure expansion and cloud capacity buildout.

Cash Flow Analysis

Operating cash flow: $139.5 billion
Net property and equipment purchases: $128.3 billion
Free cash flow: $11.2 billion

Free cash flow declined by approximately $27.0 billion year-over-year, while net property purchases increased by approximately $50.7 billion year-over-year.

The gap between operating cash flow growth and free cash flow contraction is directly attributable to elevated capital expenditures.

Quarterly Snapshot (Q4 FY2025)

Net sales: $213.4 billion (+14% YoY)
Operating income: $25.0 billion (vs $21.2B prior year)
Net income: $21.2 billion
Diluted EPS: $1.95

Q4 included special charges totaling approximately $2.44 billion, consisting of:

$1.1 billion (legal/tax settlements)
$730 million (severance)
$610 million (asset impairments)

Absent these charges, Q4 operating income would have approximated $27.4 billion.

Financial Interpretation

Key quantified conclusions:

AWS remains the primary earnings engine (57% of operating income).
Advertising growth of 22% contributes high-margin mix shift.
Retail margin improvements are measurable (North America +$4.6B YoY operating income).
Capital expenditures increased by over $50B year-over-year.
Free cash flow compression reflects infrastructure acceleration, not operating weakness.

The durability of AWS margins (~35%) and advertising growth trajectory are central to long-term earnings power.

Risk Considerations

Quantifiable risk factors include:

AWS growth slowing below 20% revenue expansion levels.
AWS operating margin compression below mid-30% range.
Sustained capital expenditure above $120B annually.
Retail operating margin regression below ~6–7%.

Profit concentration in AWS increases earnings sensitivity to cloud performance.

Investment View

Amazon produced:

$716.9B revenue
$80.0B operating income
$77.7B net income
$139.5B operating cash flow

The company simultaneously increased capex to $128.3B, reducing free cash flow to $11.2B.

The investment thesis hinges on whether AI-driven infrastructure spending sustains AWS revenue growth and margin durability at levels sufficient to justify current capital intensity.

Operational performance remains strong. Capital allocation scale is elevated.

Monitoring AWS margins (~35%), advertising growth (~22%), and capex trajectory (~$128B) will determine forward valuation sustainability.

Disclaimer

This report is provided for informational and educational purposes only and reflects the author’s analysis of publicly available financial data. It does not constitute investment advice, a recommendation, or a solicitation to buy or sell securities. The author is not a registered investment advisor. All investments involve risk, including potential loss of principal. Readers should conduct independent research and consult qualified financial professionals before making investment decisions.

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Amazon Stock Analysis (AMZN): AWS, Margins & Cash Flow 2025