Amazon AMZN released its fourth-quarter earnings report on Feb. 5. Here’s Morningstar’s take on Amazon’s earnings and stock.

Key Morningstar Metrics for Amazon

• Fair Value Estimate: $260.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Amazon’s Q4 Earnings

Amazon reported fourth-quarter results that beat the high end of guidance on the top line and came in a shade under that on operating profit. Sales grew 14% year over year in constant currency to $213.4 billion, while operating margin was 11.7% versus 11.3% a year ago.

Why it matters: Results are good, with upside on top and bottom lines. Consumer spending is tracking recent-quarter trends, as the expansion of grocery and same-day delivery is spurring demand, while AWS drove revenue upside relative to our expectations.

• All segments were slightly ahead versus our model, with physical stores in line and AWS more than $1 billion better than anticipated. We do not see any areas of concern with demand and believe results support our positive long-term view on Amazon.
• Operating income was $25 billion with a margin of 11.7%, compared with the high end of guidance at $26 billion. Excluding various one-time charges, operating income would have been $1.1 billion higher.

The bottom line: We maintain our fair value estimate of $260 for wide-moat Amazon. While results were good, guidance was shy on operating profit. Paired with capital expenditure guidance, these flow through our model, holding valuation steady. Still, given the recent selloff, we view shares as attractive.

• AWS was strong, with growth accelerating to 24% year over year, and is now at a $142 billion annual run rate. The surging demand spans both traditional and artificial intelligence workloads and drives management’s decision to accelerate investment into their most important segment.

Coming up: The outlook for first-quarter revenue is in line with our expectations, but operating income is light, resulting in slight decreases to our near-term estimates. The midpoint of guidance calls for revenue of $176 billion and operating profit of $19 billion.

• Management guided to $200 billion in capital expenditure in 2026, which we think will limit more meaningful margin expansion over the next several years.

Fair Value Estimate for Amazon Stock

With its 4-star rating, we believe Amazon’s stock is moderately undervalued compared with our long-term fair value estimate of $260 per share, which implies a 2026 enterprise value/sales multiple of 3 times and a negative 1% free cash flow yield. We note that the free cash flow yield is constrained by the significant AWS capacity expansion underway.

Over the long term, we expect e-commerce to continue to take share from brick-and-mortar retailers. We further expect Amazon to gain share online. We believe that over the medium term, covid pulled forward some demand by changing consumer behavior and better penetrating some retail categories, such as groceries, pharmacy, and luxury goods, that previously had not gained as much traction online. We think Prime subscriptions and the accompanying benefits, combined with selection, price, and convenience, continue to drive the retail story. We also see international as a longer-term opportunity within retail. We model total retail-related revenue growing at an 11% compound annual growth rate over the next five years.

Read more about Amazon’s fair value estimate.

Economic Moat Rating

We assign a wide moat rating to Amazon based on network effects, cost advantages, intangible assets, and switching costs. Amazon has been disrupting the traditional retail industry for more than 25 years, while also emerging as the leading public cloud service provider via Amazon Web Services. This disruption has been embraced by consumers and has driven change across the entire industry as traditional retailers have invested heavily in technology in order to keep pace. Recent episodes of covid lockdowns and generative AI have accelerated change, and given its technological prowess, massive scale, and relationship with consumers, we think Amazon has widened its lead, which we believe will result in economic returns well in excess of its cost of capital for years to come.

Read more about Amazon’s economic moat.

Financial Strength

We believe Amazon is financially sound. Revenue is growing rapidly, margins are expanding, the company has unrivaled scale, and the balance sheet is in great shape. In our view, the marketplace will remain attractive to third-party sellers, as Prime continues to tightly weave consumers to Amazon. We also see AWS and advertising driving overall corporate growth and continued margin expansion.

As of Dec. 31, 2025, Amazon had $123.0 billion in cash and marketable securities, offset by $65.6 billion in debt. We also expect free cash flow generation, which suffered during covid as the company invested heavily in facility expansion, content creation, and its transportation network, to be pressured in the near-term from heavy capital expenditure investments for AWS. As this current investment cycle eases, we see a return to more normal cash flow generation levels.

Read more about Amazon’s financial strength.

Risk and Uncertainty

We assign Amazon an Uncertainty Rating of Medium. The firm must protect its leading online retailing position, which can be challenging as consumer preferences change and traditional retailers bolster their online presences. Maintaining an e-commerce edge has pushed the company to make investments in nontraditional areas, such as producing content for Prime Video and building out its own transportation network. Similarly, the company must also maintain an attractive value proposition for its third-party sellers. Some of these investment areas have raised investor questions in the past, and we expect management to continue to invest according to its strategy, despite periodic margin pressure from increased spending.

The company must also continue to invest in new offerings. AWS, transportation, and physical stores (both Amazon branded and Whole Foods) are three notable areas of investment. AI investments for AWS were substantial in 2025 and will remain so in 2026, for example. These decisions require capital allocation and management focus and may play out over a period of years rather than quarters.

Read more about Amazon’s risk and uncertainty.

AMZN Bulls Say

• Amazon is the clear leader in e-commerce and enjoys unrivaled scale to continue to invest in growth opportunities and drive the very best customer experience.
• High-margin advertising and AWS are growing faster than the corporate average, which should continue to boost profitability over the next several years.
• Amazon Prime memberships help attract and retain customers who spend more with Amazon. This reinforces a powerful network effect while bringing in recurring and high-margin revenue.

AMZN Bears Say

• Regulatory concerns are rising for large technology firms, including Amazon. The firm may face increasing regulatory and compliance issues as it expands internationally.
• New investments, notably in fulfillment, delivery, and AWS should dampen free cash flow growth. AWS investments for AI have been substantial and are likely to remain elevated for several years.
• Amazon may not be as successful in penetrating new retail categories, such as luxury goods, due to consumer preferences and an improved e-commerce experience from larger retailers. The same applies to international expansion.

This article was compiled by Rachel Schlueter.