UBS Reiterates Buy Rating on Amazon and Raises Price Target to US$318

Overview

UBS maintained its Buy rating on Amazon and raised its price target following the company's 2Q26 results. The core rationale is that AWS is accelerating on enterprise AI demand, Bedrock, and core cloud services, with AI ARR, backlog, and operating profit all showing strong momentum. In retail, North America retail exceeded expectations as Prime Day was moved forward to June, but transportation costs grew faster than sales volume, reflecting investment in faster delivery and international expansion.

Core views

The report's core view is that AWS growth and margin expansion remain undervalued by the market. UBS expects AWS to grow approximately 39% in the second half of 2026 and more than 40% in 2027 after OpenAI begins using Trainium chips in early 2027. Even as AI compute workloads increase as a share of the business, AWS's adjusted operating margin should remain stable, and UBS believes revenue scale growth will drive continued segment margin expansion.

Analysis framework

The report combines earnings comparisons, segment operating analysis, estimate revisions, and free cash flow valuation. It first compares actual 2Q26 revenue, operating profit, AWS growth, and CapEx with UBS and market expectations; then reassesses revenue, GMV, advertising, and CapEx assumptions based on AWS backlog, AI ARR, and changes in Prime Day timing; finally, it derives the price target using a P/FCF multiple approach and tests the risk-reward skew through upside, base, and downside scenarios.

Methodology notes

• Valuation methodsPrice/free cash flow multiple method

  P/FCF valuation

  UBS uses estimated free cash flow of US$116.3bn for 3Q27-2Q28 as the basis and applies a 30x multiple to derive a US$318 price target; the report states that Amazon has long communicated with investors around cash flow generation and investment, supporting the use of a P/FCF framework.

• Scenario analysisUpside/base/downside scenarios

  Risk-reward skew

  The upside scenario has a US$509 price target, assuming two-year revenue growth of 20%, an FCF margin of 15%, and a 35x multiple; the base case is US$318, assuming 17%, 11%, and 30x; the downside case is US$153, assuming 13%, 9%, and 20x, implying a 2.4x skew.

• Earnings analysisActuals versus expectations

  Earnings beat and estimate revisions

  The report compares 2Q26 revenue, operating profit, AWS growth, North America retail, CapEx, and other metrics with UBS and market expectations, and uses the results to raise AWS growth and related financial forecasts.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AMZN.O

  Research subject

  Strengths

  Accelerating AWS growth, rapidly rising AI ARR, strong backlog, North America retail outperformance, and free cash flow valuation support for the higher price target.

  Weaknesses

  Higher 2026 CapEx guidance, transportation costs growing faster than sales volume, 3Q26 revenue guidance below market expectations, and advertising revenue slightly below expectations.

  Comparison

  UBS notes that AMZN trades at approximately 19x 2027E GAAP EPS, below the 20x-25x range for mega-cap technology peers such as GOOGL and META.

  Risks

  Intensifying e-commerce competition, deteriorating consumer confidence, and higher-than-expected capital intensity in AWS or e-commerce could weigh on free cash flow.

Key data

• 2Q26 revenueUS$200.6bnAbove UBS's estimate of US$196.2bn and the market estimate of US$196.8bn.
• 2Q26 operating profitUS$27.5bnAbove UBS's estimate of US$24.2bn and the market estimate of US$23.8bn, including approximately US$1.2bn in one-time gains.
• AWS year-over-year growth37%Above UBS's estimate of 32% and the market estimate of 31%.
• AWS AI ARRUS$25bnMore than doubled from the US$10bn disclosed in 1Q26.
• AWS backlogUS$496bnIncreased by US$51bn quarter over quarter and includes approximately US$100bn related to the Anthropic agreement.
• 2026 CapEx guidanceUS$220bnRaised from US$200bn, primarily driven by higher supply chain and memory costs.
• Price targetUS$318Previously US$305.
• Current share priceUS$258.12As of July 30, 2026.
• Forecast price appreciation23.2%Forecast price appreciation disclosed in the table.

Impact & implications

If AWS continues to accelerate while margins remain stable or expand, the market may continue to raise its revenue and operating profit expectations for Amazon, driving a valuation re-rating for AMZN. The report believes the current share price represents approximately 19x UBS's 2027E GAAP EPS and should not trade below the market multiple; relative to the 20x-25x range for mega-cap technology peers such as GOOGL and META, there remains room for a re-rating.

Risks

• Increasing competition in online e-commerce and physical retail.
• Deteriorating consumer confidence could affect transaction volumes and purchase frequency.
• Higher-than-expected capital intensity in AWS or the e-commerce platform could weigh on free cash flow forecasts.
• The 2026 CapEx guidance was raised to US$220bn; if investment returns fall short of expectations, valuation could be pressured.
• Transportation costs grew 19%, above the 17% increase in sales volume, which could affect e-commerce margins.
• 3Q26 revenue guidance is below market expectations and includes an approximately 80-basis-point adverse foreign-exchange impact.

What to watch

• Whether AWS growth in 3Q26 and the second half of 2026 approaches UBS's forecast of 38.9% and approximately 39%, respectively.
• Whether AI ARR can continue expanding from the US$25bn base.
• The impact on AWS growth and margins after OpenAI begins using Trainium chips in early 2027.
• The pace at which AWS backlog converts into revenue and the progress of recognizing contributions from the Anthropic agreement.
• The impact of increasing CapEx from US$200bn to US$220bn on free cash flow and investor expectations.
• Changes in 2Q/3Q revenue timing caused by Prime Day being moved forward, and whether 3Q26 revenue guidance is achieved.
• Whether the gap between transportation cost growth and sales volume growth narrows, validating the path to e-commerce margin improvement.