Pershing Square Inc. on Amazon.com, Inc.
Thesis
Pershing Square believes investors are significantly underestimating Amazon's earnings and free cash flow potential because they are excessively focused on the near-term costs of its AI infrastructure buildout. AWS revenue growth accelerated to 39% in the third quarter, its fastest pace in almost five years, while its backlog approached $600 billion. The fund views AWS as exceptionally well positioned across the AI stack through Bedrock, proprietary Trainium chips, and growing demand for conventional cloud computing associated with AI agents and post-training workloads. Amazon's management expects AWS growth to exceed 40% in both 2027 and 2028 and believes the business could eventually reach $1 trillion in annual revenue. Pershing Square also sees AI strengthening Amazon's retail and advertising businesses through agentic shopping, higher conversion rates, and growing customer engagement. The fund believes that as infrastructure utilization increases and capital expenditure growth eventually moderates, free cash flow and returns on invested capital will improve substantially, supporting long-term EPS growth exceeding 20%.
“We believe Amazon can compound earnings at a 20%-plus rate over the long term.”
Key risks
- Amazon's approximately $220 billion of planned 2026 capital expenditures, with meaningfully higher spending expected in 2027, could pressure near-term free cash flow.
- AWS revenue growth may fall short of management's expectations for growth exceeding 40% in 2027 and 2028.
- The AI infrastructure buildout may fail to produce the anticipated returns on invested capital or may require more sustained capital intensity than expected.
- Long investment lead times for data center facilities and delays associated with power, permitting, and semiconductor supply could postpone expected revenue generation and cash flow recovery.