AMZN — Q4 FY25 Earnings Review

Verdict: Strong quarter. AWS re-acceleration to 24% on $142B ARR is the story — and the leading indicators say it's not done.

Reported: Feb 5, 2026 | Quarter ending: Dec 31, 2025 Analyst: wsm007 | Date: 2026-04-01

Opening

AWS at 24% YoY on a $142B run rate — fastest growth in 13 quarters — is the kind of number that makes you sit up. This is not some small-base trick; Jassy himself pointed out what 24% on $142B means in absolute dollar terms vs "a higher percentage on a meaningfully smaller base, which is the case with our competitors." The backlog at 244Bgrowing4010B ARR growing triple-digit %. Bedrock spend up 60% QoQ. These are the compounding engines.

I haven't written about AMZN specifically before — it's not the typical hypergrowth SaaS that dominates my portfolio. But applying my framework to a $717B revenue company that just accelerated from 8.7% to 13.6% YoY through FY25, with its highest-growth segment showing widening leading indicator divergence, this deserves attention.

1. Revenue — The Numbers

Consolidated Revenue

| | Q122 | Q222 | Q322 | Q422 | Q123 | Q223 | Q323 | Q423 | Q124 | Q224 | Q324 | Q424 | Q125 | Q225 | Q325 | Q425 | | | Mar-22 | Jun-22 | Sep-22 | Dec-22 | Mar-23 | Jun-23 | Sep-23 | Dec-23 | Mar-24 | Jun-24 | Sep-24 | Dec-24 | Mar-25 | Jun-25 | Sep-25 | Dec-25 | |---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---| | Revenue ($B) | 116.4 | 121.2 | 127.1 | 149.2 | 127.4 | 134.4 | 143.1 | 170.0 | 143.3 | 148.0 | 158.9 | 187.8 | 155.7 | 167.7 | 180.2 | 213.4 | | QoQ % | 5.1% | 4.1% | 4.8% | 17.4% | 0.2% | 5.5% | 6.5% | 18.8% | -15.7% | 3.3% | 7.4% | 18.2% | -17.1% | 7.7% | 7.5% | 18.4% | | YoY % | 7.3% | 7.2% | 14.7% | -- | 9.4% | 10.8% | 12.6% | 13.9% | 12.5% | 10.1% | 11.0% | 10.5% | 8.7% | 13.3% | 13.4% | 13.6% |

Same-Quarter YoY Trajectory Grid

FY25 story: Q1 was the trough (8.7%), followed by three consecutive quarters of acceleration to 13.6%. This is the right trajectory.

QoQ Seasonality Grid (sequential $ adds)

FY25 Q4 sequential add of $33.2B is the largest ever. Every QoQ sequential add in FY25 exceeded every prior year. The absolute revenue machine is accelerating.

Beat History

Consistent beats, all quarters. Q4 FY25 beat the HIGH end of guidance ($213.4B vs $213.0B). This is a management team that under-promises. Nuf said.

2. Segment Deep-Dive

AWS — The Crown Jewel

AWS QoQ acceleration is the critical signal. QoQ went from 1.7% (Q1) to 5.5% (Q2) to 6.9% (Q3) to 7.8% (Q4). That 7.8% QoQ annualises to ~35% growth — and it's accelerating quarter over quarter. On $35.6B of quarterly revenue. At $142B ARR.

Leading indicator divergence:

• AWS backlog: $244B, +40% YoY, +22% QoQ — Revenue growing 24%. That 16pp gap between backlog growth and revenue growth is the alpha signal. Revenue MUST accelerate to close this gap.
• Custom chips ARR: >$10B, triple-digit YoY growth — Still early innings.
• Bedrock customer spend: +60% QoQ — Multibillion-dollar ARR, but the growth rate is stunning.
• Amazon Connect: $1B ARR, 30%+ growth — SaaS-grade metrics within AWS.

AWS margin: 35.0% in Q4, +40bps YoY. Despite the massive capex cycle (added 1+ GW capacity in Q4 alone, more DC capacity in 2025 than any other company). Olsavsky warned margins "will fluctuate" — and they have (32.9% in Q2 FY25). But the trajectory is maintaining 33-39% through the investment cycle. This is the operating leverage proof.

Advertising — The Second Engine

Advertising at $21.3B/quarter, growing 23% YoY. That's an $85B annualised business growing at near-AWS rates. Prime Video ads now at 315M global viewers (up from 200M early 2024). This is very high-margin revenue being added on top of the retail infrastructure — pure incremental profitability.

North America

*Q3 includes $4.3B special charges. Q4 includes portion of $2.4B charges.

NA op margin of 9.0% is a record. The regionalization strategy (8 to 10 fulfilment regions), robotics (1M+ robots), and delivery speed improvements are translating into structural margin expansion. Paid units +12% YoY (best of FY25). Same-day delivery used by ~100M customers.

International

*Includes $1.1B Italy tax charge. Excluding charges, margin expanded YoY.

International is the investment segment — Amazon Now quick commerce, aggressive pricing, geographic expansion. Revenue +17% YoY (+11% ex-FX). Margin compression is intentional investment, not weakness.

3. Margins & Profitability

*Q3 includes $4.3B charges; Q4 includes $2.4B charges.

Adjusted operating margin of 12.8% in Q4 is remarkable for a $213B revenue company. Gross margins in the 48-52% range are healthy. The operating leverage story from FY22's 2% operating margins to FY25's 11-12% is one of the great margin expansion stories in mega-cap history.

FCF & The CapEx Question

This is where it gets interesting — and where the debate lives.

Operating cash flow is healthy and growing 20% YoY. The FCF compression is 100% capex-driven. If you believe the capex generates AWS-like returns (35% op margins, growing 24%), then FCF is being temporarily depressed by investment with exceptional ROIC. If you don't trust the ROIC on $200B, this is terrifying.

Two analysts (Mahaney, Anmuth) asked for a FCF floor or financial guardrails. Both times, Jassy deflected. "Extraordinarily unusual opportunity." No explicit guardrail. This is the single biggest risk — investors are being asked to trust management on an unprecedented capital allocation scale with no explicit downside protection.

My view: The backlog ($244B, +40% YoY) provides revenue visibility. AWS is monetizing capacity as fast as it's installed (Jassy's words). The custom chips strategy (Trainium/Graviton) gives cost advantages over competitors relying on NVIDIA. The operating margin stability through the investment cycle (35% AWS, expanding NA) is evidence of discipline. But I'd feel better with a stated FCF floor.

4. SBC & Dilution

SBC declining as a percentage of revenue. Dilution under 1%. Non-issue.

5. Guidance

Q1 FY26: Revenue 173.5B−178.5B = +13% YoY at midpoint. Op income 16.5B−21.5B = +3% at midpoint.

Given Amazon consistently beats the high end of guidance (Q4 FY25: $213.4B vs $213.0B high), the real revenue is probably $180B+.

Revenue guidance implies continued acceleration. Q1 FY25 actual was $155.7B. Guide midpoint of $176.0B = +13% YoY, consistent with Q3-Q4 trajectory. No deceleration in the guide.

Op income guidance is conservative. $19.0B midpoint vs 18.4BQ1FY25actual = only + 31B incremental Leo (Kuiper) costs + international quick commerce investment. Adjusting for Leo alone, underlying op income guide is closer to $20B = +9% YoY. And Amazon beats.

FY26 CapEx: ~$200B. This is the headline that will dominate market sentiment. Up from $128B FY25, up from $78B FY24. Predominantly AWS. No stated return thresholds. Trust Jassy.

6. Conference Call Highlights

Management tone: Euphoric on AI opportunity. Jassy was aggressive, confident, dismissive of competitors. No hedging on demand — "as fast as we install this AI capacity, we are monetizing it." Unprompted raises of Nova Forge, Strands, AgentCore, Frontier Agents — the product velocity is genuine.

Key quotes that matter:

• "It's very different having 24% year-over-year growth on a $142 billion annualized run rate than to have a higher percentage growth on a meaningfully smaller base, which is the case with our competitors." — Competitive positioning.

• "As fast as we install this AI capacity, we are monetizing it. It's a very unusual opportunity." — Demand > supply. The bull case in one sentence.

• "Our backlog is $244 billion. That's up 40% year-over-year." — Leading indicator divergence, plain as day.

• "Trainium is a multibillion dollar annualized run rate business at this point, and it's fully subscribed." — Custom chips are working. This is the cost advantage.

What analysts focused on: ROIC confidence (Mahaney), FCF guardrails (Anmuth), AI market bifurcation (Sandler), agentic shopping disrupting ads (Morton). The market wants to believe but needs more explicit financial guardrails. Jassy's response: just trust me, the opportunity is extraordinary.

7. Valuation

P/S of 2.58x for 13.6% revenue growth — but this isn't a unitary business. The sum-of-parts tells a different story:

• AWS: 142BARRat10xrevenue(351.42T**
• Advertising: 85BARRat8xrevenue(high − margin, 23680B**
• Retail + Subs: 490BARRat1.5xrevenue(lowmargin, mature) = **735B**
• Sum of parts: ~$2.84T vs $2.2T market cap = 23% discount

This back-of-envelope says the market is underpricing the high-growth, high-margin segments. AWS alone at $1.4T would be the third-largest company in the world.

8. Risk Assessment

9. Thesis

I haven't held AMZN before — my portfolio is typically concentrated in 7-12 hypergrowth names. But applying my framework, the AWS segment alone would qualify as a position: $142B ARR, 24% growth accelerating, 35% operating margins, with leading indicator divergence (backlog 40% > revenue 24%) suggesting further acceleration.

The thesis for AMZN is an infrastructure investment cycle thesis:

1. AWS demand exceeds supply — backlog $244B (+40% YoY) is the proof
2. Custom chips (Trainium/Graviton) provide structural cost advantage
3. Revenue acceleration is confirmed (8.7% to 13.6% through FY25)
4. Advertising is a second compounding engine ($85B ARR, 23% growth)
5. Operating leverage is proven (2% to 12% op margin in 3 years)
6. FCF compression is temporary and investment-driven (not operational weakness)

What would break the thesis:

• AWS growth decelerating for 2 consecutive quarters (watch for <20%)
• AWS operating margin falling below 30% for 2 consecutive quarters
• Backlog growth decelerating toward revenue growth (divergence closing from the wrong direction)
• Management lowering capex guidance without corresponding revenue acceleration
• Miss-and-lower on revenue guidance

What to watch next quarter (Q1 FY26):

• AWS YoY growth — does it hold 24%+ or is Q4 the peak?
• AWS backlog update — is the divergence widening or stable?
• Revenue beat magnitude — does Amazon maintain 1.5-2% beat pattern?
• Operating margin ex-Leo costs — is NA margin expansion continuing?
• Any specific ROIC or FCF commentary from management

10. Action

Watchlist — seriously. I'm not adding it today because of portfolio construction (my concentrated hypergrowth approach doesn't naturally accommodate a $2.2T mega-cap), but the AWS story standing alone would be a compelling growth investment. If I were running a broader growth mandate, this would be a position.

For existing holders: strong hold. The re-acceleration is real, the leading indicators are bullish, the valuation is reasonable on a sum-of-parts basis. The capex cycle is the only legitimate concern, and management has earned the benefit of the doubt (but should provide explicit guardrails).

Prior Beliefs / Updated Beliefs

-wsm

(Not long AMZN — watchlist. Portfolio concentrated in hypergrowth names.)