Morgan Stanley's Amazon earnings verdict has a blind spot

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Amazon (AMZN) banal closed the July 31 trading league up 15.32% astatine $271.58, arsenic it soared pursuing the merchandise of its 2nd 4th (Q2) 2026 net study connected July 30.

The banal is up 17.66% year-to-date arsenic of Saturday morning, August 1. Meanwhile, the SPDR S&P 500 scale (SPY) is up astir 9.55% successful the aforesaid period.

On a superficial level, the net look great, but during the artificial quality (AI) boom, speechmaking the good people is much important than ever, arsenic is knowing the larger picture.

In a probe enactment shared with me, Morgan Stanley expert Brian Nowak and his squad are bullish connected Amazon banal and person lifted their terms people to $335 from $330, reiterating an overweight (buy) standing based connected a 25x multiple.

Key facts from Amazon's Q2 net report

Amazon reported gross of $200.6 billion, up 20% twelvemonth implicit twelvemonth (YoY). Net income accrued 243.95% YoY to $62.6 billion.

Unfortunately, the awesome nett income maturation comes with a caveat. As the institution noted, Q2 2026 nett income includes non-operating pre-tax different income of $53.4 billion, chiefly from its investments successful Anthropic.

That means Amazon's concern successful Anthropic, which is simply a backstage company, has grown successful theoretical worth since the investment. The occupation is that it is not connected the banal market, and the valuation whitethorn oregon whitethorn not beryllium of applicable value, arsenic we volition spot later.

During the net call, Amazon CEO Andy Jassy addressed increasing superior expenditures (CapEx):

"We present judge we volition walk astir $220 cardinal successful currency CapEx successful 2026. The higher outgo of representation [is] pushing this fig up from our anterior estimation of astir $200 billion. Even astatine that amount, we volition inactive not person capable capableness to conscionable each the request we person successful 2026, and I judge this dynamic volition besides beryllium existent successful 2027, too."

High CapEx is already negatively impacting Amazon's escaped currency flow, and accrued CapEx isn't desirable. Free currency travel successful Q2 2026 deed a antagonistic $7.6 billion. We request to retrieve that it was inactive affirmative successful Q1 astatine $1.2 cardinal and reached $18.2 cardinal successful Q2 2025.

Along with precocious CapEx, Amazon has thrown a batch of wealth into Anthropic's rival OpenAI.

Amazon's Form 10-Q says:

"Subsequent to June 30, 2026, we invested the remaining $21.3 cardinal Commitment Amount successful shares of Series C Preferred Stock of OpenAI."

According to the Financial Times, this last tranche was finalized successful the past week of July.