Huge News for Amazon Stock Investors! | AMZN Stock Analysis
Summary
Parkev analyzes Amazon's plan to issue at least $25 billion in US dollar bonds, noting that the company's strong cash flow and low debt-to-equity ratio make it a very low-risk borrower. Parkev highlights that Amazon's cost of debt is less than 6%, which is much cheaper than its 12.6% cost of equity. By borrowing instead of issuing stock, Parkev explains that Amazon is effectively lowering its weighted average cost of capital (WACC), which Parkev currently calculates at 11.6%.
However, Parkev expresses a major concern regarding the sustainability of Amazon's massive spending on artificial intelligence and data centers. Parkev forecasts that this spending will result in a negative free cash flow of $10 billion in 2026. Parkev questions whether Amazon is spending out of necessity or fear of competition, and wonders when shareholders will finally see the returns on these multibillion-dollar investments. Despite these capex concerns, Parkev maintains a bullish stance based on valuation metrics.
Mentioned Stocks
Reasoning: Parkev believes Amazon is an attractive buying opportunity because its current market price of $245 is significantly below Parkev's fair value estimate of $299. Parkev calculates a WACC of 11.6% and argues that borrowing at roughly 6% interest is a positive move for the capital structure. Parkev states that anything below $275 is a good price to add to a position, although Parkev warns that heavy AI spending could lead to a negative free cash flow of $10 billion by 2026.