Transcription
This is one of the best investing setups in the stock market right now, and I'm absolutely excited to share it with you today.
Now, over the past few years, I've made a lot of people very wealthy. In fact, I've made myself very wealthy by picking good stocks. Stocks like Palunteer, like Nvidia, like Vertive, like AET, the list goes on and on and on and on. My track record, although not 100%, is actually very good. The reason is, and it's not about me having a crystal ball or me being smarter than anybody else, is because I follow a very strict methodology, a very strict set of rules, which is I look for companies which actually get better and better and better business-wise, margins, revenue growth, etc., etc., versus the stock price that lags behind.
Now, that is exactly what we're talking about today. So, pay attention.
Now, as always in all of my videos, always, always, always, I'm not going to hold you hostage. So, if you're here just for the bottom line, there's no need to put it through some AI chatbot. Here it is. I'm talking about Amazon stock, AMZN. If that's what you needed from this video, go right ahead. But I warn you, if you leave now, you're not going to understand the thesis. This conviction isn't going to hold. And the first time, we're going to have a little bit of turbulence. You guys are going to sell and you're going to miss out. So, spend the next 7 to 8 minutes with me understanding the thesis so you can actually hold on to this even if times get a little bit more turbulent because you need to understand what you're buying. That's the first rule Peter Lynch always talks about. You have to understand the companies you're investing in. Don't buy it because Tom Nash said it's a great stock.
Listen to me very carefully. Look at the Amazon chart right now on Google. Pull it up. 5 years 58%. Then pull up the S&P 500 5 years 71%. So Amazon is actually lagging by 13% the index. It has underperformed the S&P 500 for the past 5 years. And that is where I get excited because that is only half the question. The other half. Well, why did they lag the S&P 500? What happened business-wise with Amazon? Let's take a look.
Let's go to stock MVP, stock-mpp.com, a platform I built for you to do an analysis exactly like this to look at stocks and find out hidden gems. By the way, we're moving to Stock MVP 2.0. And when we do, prices go up. This is your last chance to lock in the old prices.
Now, look at Amazon. Revenue has doubled over the past 5 years and it's now up to $716 billion. Currently growing in double digits at about 12% per year. Look at operating margin. It has doubled in the same time frame to 11.6%. Look at free cash flow. It went from -14 billion to positive 7.7 billion. Look at assets. The amount of assets Amazon holds actually tripled in that time frame, going all the way to $820 billion. Look at net income. Net income actually quadrupled all the way to $77 billion in the same time frame. In 2020, you would have bought Amazon at four times sales. It is currently trading at 3.4 times sales. The Forward P/E was 56 back in those times. It's now at 24. So, it's significantly cheaper on an objective spectrum than it was in 2020. Even though the net income quadrupled, revenue doubled, and margin doubled.
Whenever we see something like this, we understand that we have an opportunity. This stock has gotten cheaper and cheaper and cheaper, it lagged the S&P 500 while every single fundamental you can think of has done better and better and better.
Now, the thing about Amazon and why I think it's such a great investment is number one, it has what I call the rubber band effect. Whenever fundamentals do this, and whenever the price at the same time stagnates, there's always a catch-up. Peter Lynch said this multiple times, every single time, long-term, the fundamentals are going to drive the stock price. And the longer the stock gets stuck in the stagnation mode, the bigger the eruption will be, just like pulling on the rubber band. So, this stock will eventually catch up with all this fundamental insanity that we've seen, and that's going to be very violent upwards.
Now, Amazon is a one-of-a-kind opportunity because it's very strange. On the one hand, everybody knows about Amazon. It's a household name. Everywhere on the globe, people know this brand. People know this company, but very few people actually understand what the business has become for the past few years. Most investors still think of Amazon as if it's an online store with AWS attached to it. That description is outdated. Amazon today is a profit machine built around five engines: Consumers, Sellers, Advertising, Cloud Infrastructure, and Automation.
Now AI is actually pushing Amazon directly into the most profitable part, AWS. That is where the opportunity. AWS, the cloud services, is where the money is. Now the old Amazon story was simple: Sell products, provide a good price, move products faster than your competitors, keep customers super happy, reinvest everything. That was the plan for the past 25 years. Now, that old story no longer applies. Amazon 2026 is actually turning these customer relationships into advertisement, into actual marketplace fees, into a cloud business. The whole thing basically comes together with the Anthropic relationship into one of the clearest enterprise AI demand signals in the market. Um, that's not a normal retailer. That's kind of a whole road across every single major digital trend we're going to have in our economy over the next 10 years. And this is the part that the market keeps missing out on.
Amazon's value is not proportional to its revenue. A dollar of AWS revenue is worth far more than a dollar of first-party retail revenue if you actually understand the business. A dollar of advertising revenue is actually worth far more than a dollar of first-party retail revenue. So the real story is a mix. It's a shift. If AWS and advertising and subscriptions and third-party seller services and automation keep becoming more and more important as you would expect with AI, Amazon is going to grow profits faster than revenue and the stock price will have to catch up. That is how a giant company can still surprise a lot of people.
And you may have heard that Amazon actually signed a deal with Anthropic. This is just like Costco landing a customer who agrees to buy $100 billion of goods before the warehouse is even fully built. That is basically what happened here, except the goods are compute capacity. Anthropic committed more than $100 billion over 10 years to Amazon and secured up to 5 gigawatts of capacity to train and run Claude, which is slowly becoming the best LLM model in the market. Amazon is adding $5 billion now with up to $20 billion more later on top of the prior $8 billion investment they already made. Anthropic also gets access to Amazon's Tranium chips, which essentially create Amazon as a vertically integrated cloud provider, just like Google.
Now this matters because the hardest part of AI investing is kind of separating real usage from what I call expensive theater. Many of these AI stories are full of vague language. Productivity, agentic AI, AGI, transformation, disruption, all of these are buzzwords. Amazon actually has the numbers to back it up and they have a customer committing to buy massive amounts of infrastructure going ahead. Now, if Amazon was spending $200 billion on AI infrastructure with no visible customers, the bare case would have been quite easy. Hey, they're overbuilding. They're overspending. You know, it's too much hype. But the Anthropic commitment that just came in gives investors a concrete demand and a concrete plan. It's not pipe dreams. It's not vaporware. It's not blue sky. It's actual dollars.
The Anthropic deal also gives Amazon a second way to win. If Anthropic becomes one of the leading AI labs, which it's completely on path to become right now, Amazon benefits from this investment. If Anthropic keeps consuming more and more compute, Amazon benefits. If enterprises adopt cloud through AWS, through the Amazon infrastructure, Amazon benefits. Amazon benefits because it essentially does what Google has done with TPUs. It becomes its own vertically integrated cloud service. Money goes into Anthropic. Anthropic grows. Anthropic needs more compute. AWS sells this compute. Amazon learns from this workload. Tranium chips improve. They become more useful. Enterprise adoption creates more demand. It's a snowball effect.
AWS revenue right now is about $130 billion per year. If AWS grows about 15% annually for the next 3 years, it's going to be at about $200 billion. If it grows at 20% annually, we're talking about $220 billion. Amazon operating margin right now is about 35%. If margins stay on that level, the Amazon AWS operating income could move from $45-50 billion all the way to $69, all the way to $79-85 billion over the next 3 years. And that is just the cloud services. At that point, AWS alone could be producing operating income close to what the entire company produced back in 2025. That is the huge bridge people miss here while the price is lagging behind the S&P 500. And the cool thing about it, you don't need fantasy assumptions.
Now, the bears are going to say, well, AWS growth is going to slow down because everybody's overspending on AI capacity. I say we're still early in enterprise AI adoption. Compute demand is going to keep surprising to the upside. The Anthropic deal shows that that is the right thesis. It's just the beginning. We're in the first innings of this game. That is the whole point. Amazon isn't hoping for demand that's going to show up someday. They already have it locked in with this new deal, and it's only going to increase.
Now the biggest story here which everybody's missing is Tranium. Now Tranium is basically just like TPUs. It's not some chip fanboy story. We're talking about going vertically integrated just like Google did. Amazon does not need to compete with Nvidia. Amazon needs Tranium to improve AWS performance and economics compared to the existing Nvidia models, just like Google did with TPUs. If Amazon can run more training, more inference on its own silicon, it can reduce dependence on supply chains. It can reduce costs, both operating and the capex of buying and building. That gives Amazon more control over cost, supply, pricing, margins, everything, just like Google did with TPUs. And that's huge. And while Google has priced that in stock price-wise, Amazon is still basically behind the curtain. Nobody is seeing this coming.
Now, the real prize here in my opinion is inference. Training gets attention because building frontier models is dramatic. It makes headlines. Inference is where recurring usage can explode. Every coding assistant, every customer service bot, every enterprise agent, every document processing tool, all of them need more compute, need more context. If AI becomes embedded into our daily business work, which seems to be happening right now, inference becomes more a recurring utility bill than anything else. And that's huge for a business like AWS.
Now businesses are not just going to ask, okay, which model is best? They're going to ask, which is the most secure, reliable, integrated, and most importantly, affordable at scale. That's why Google is exploding. That's why AWS with the Tranium chips is going to do the same thing.
Now the best way to understand Amazon is through three simple stories. First, the store became the mall. Amazon started selling products. But the better business became letting other sellers use the platform. That changed Amazon from a retailer to a marketplace. Then the mall became an advertising network. Once millions of shoppers and sellers got inside the marketplace, visibility became the real value. Amazon did not need to invent customer attention. It already has it. Then the third step was making the internal infrastructure into a global utility. Amazon built cloud tools for itself. Then realized other companies need the same thing. AWS became the biggest profit engine for Amazon. And now AI is making that infrastructure more valuable because modern AI needs huge amounts of compute and it needs enterprise-grade deployment which AWS has.
Now Anthropic and Tranium fit that playbook perfectly. And here's the best part. This stock does not need a lot of potential to be actually implemented because with a lot of these stocks that you have right now on X, on other social media, on Instagram, TikTok, whenever, right? A lot of these stocks, they're telling a great story and some of them will pan out, right? But you need so much to happen with these dogs for the current valuation to justify itself, right? There's a lot of risk there. With Amazon, literally, the only thing that Amazon needs to do, there's no huge potential it needs to unlock. There's no huge uncertainties it needs to do. All it has to do is keep on working. Just keep on doing what it's doing right now and the share price is going to go up because the fundamentals are going to make it happen. So unlike these hype growth stocks, with Amazon, all they have to do is just make sure they don't screw it up. That's it. I find it to be a better risk setup than buying a company with crappy fundamentals but a great story.
Now for Amazon to be successful in my opinion over the next 5 years and to give you 100-130%, which I believe it will do for the next 5 years, two things need to happen. Number one, the AI mega trend needs to be real. Basically, if AI is fake and the whole AI demand is, well, it's not going to be good for Amazon because Amazon basically thrives in the AI demand. So if AI is real, if the AI cycle is real, then that's our first condition. The second condition is that macro doesn't collapse, that we don't have a huge recession, job loss, unemployment, and the stock market collapse, which is going to get everybody wet, and Amazon is going to be included. So, as long as we don't have a massive recession, a macroeconomic collapse, and as long as AI is real, assuming these two things are actually true, which is a very easy assumption for me to make looking at the current macro fundamentals, looking at the current setup of AI, I find it to be a very easy assumption, Amazon is going to rubber band all the way up because it's been absolutely lagging for the past 5 years. Every single time that's going to happen.
Now, my price targets for the next five years are: my bare case for Amazon for the next 5 years is going to go from $450 currently all the way to $644. That's a 44% upside at the absolute worst. Okay. My middle case is up all the way to $846 per share, which is an 89% upside. And my bull case, which is quite conservative to be honest, is $1,490 and 134% upside over the next 5 years. With so little risk with Amazon, such a massive upside for a company that's already so established, it's criminal not to look at this and say, "Hey, this is probably a really good addition to any portfolio in the stock market right now." And I strongly believe so.
Now, what I suggest you do next is this. Number one, do your own research about Amazon. Get stockp.com. Get it right now. Run Amazon through it. See if it fits your narrative, if it fits your thesis, and if it fits your portfolio and your risk profile. Number two, Amazon isn't the only stock that has a similar setup. In fact, I identified a few of them, and I call it my top 15 stocks to own for the next 10 years. This list I'm going to give you for free. All you got to do, go to the description right now, click the link, and get the list. No strings attached. It's yours. And number three, if you actually want to take it to the next level and get our top stocks list and get access to our community on Discord and to see me live once per week and to be able to DM me personally and talk to me, join the academy payton.com/tomnash. We have 32,000 members. Would love to have you in there. Thank you so much. I'll see you next one. This.