Amazon DCF: What Growth Is the Market Pricing In?

Amazon's shares were worth $2,748 billion on 15 October 2026, or $254.76 each. Free cash flow is the cash a business has left after paying for property and equipment. Amazon's was negative $11.6 billion over the twelve months to 30 June 2026.

A normal Discounted Cash Flow (DCF) valuation grows today's free cash flow forward, so it cannot start from a negative number. A reverse DCF starts from the market value instead. It solves for what the company would have to do.

Company figures come from Amazon's annual and quarterly reports, under US accounting rules known as Generally Accepted Accounting Principles (GAAP). The table below names every market-data source.

Over the twelve months to 30 June 2026, Amazon brought in $161.4 billion of operating cash. It spent $173.0 billion on property and equipment. That leaves negative $11.6 billion.

Capital spending last exceeded operating cash in 2021 and 2022, when free cash flow was worse than it is now. It recovered both times. Fiscal 2025 was positive but thin: $139.5 billion of operating cash less $131.8 billion of capital spending left $7.7 billion.

A DCF that grows a negative starting figure returns a negative value. That says nothing about what Amazon is worth. We build the normal version for Microsoft in What Is a DCF? and run one backwards for Tesla in What Is a Reverse DCF?.

Capital spending ran at 5.8% of net sales in 2018 and 18.4% in fiscal 2025. Over the twelve months it reached 22.3%, or 107.2% of the operating cash the business produced. Amazon Web Services (AWS), the cloud computing arm, took 74.0% of net additions to property and equipment.

Three things:

Free cash flow as a share of sales is the first two added, less the third: 12.08% plus 8.73% less 22.31%, or negative 1.50%. On net sales of $775.7 billion that is negative $11.6 billion.

Each is a separate lever. That is why the reverse DCF has more than one answer.

Shareholders own a company's spare cash, while lenders are owed its debt. At 30 June 2026 Amazon held $123.0 billion of cash and marketable securities against $132.5 billion of debt. Net cash was negative $9.6 billion, so the bridge adds it back.

That puts the business itself at $2,757 billion, the number the cash flows have to reach. We explain the bridge in What Is Enterprise Value?.

Per share that target is $255.65, against a share price of $254.76 on 15 October 2026. The $0.89 between them is the net debt.

The discount rate is the Weighted Average Cost of Capital (WACC), the yearly return a company's shareholders and lenders together want for the risk. We follow the method in What Is WACC?.

The cost of equity uses the Capital Asset Pricing Model (CAPM). It takes the 10-year US Treasury yield of 5.10% on 15 October 2026, then adds Amazon's beta times an equity risk premium of 4.20%.

Beta is how much a share moves with the market. Amazon's was 1.4532, which puts the cost of equity at 11.20%.

An index of US company bonds rated AA, the second-highest credit grade, yielded 5.67%. Interest reduces a tax bill, so at Amazon's tax rate of 22.6% the cost of debt comes to 4.39%.

Source: FRED; Amazon SEC filings; YX Insights

Debt is 4.6% of Amazon's capital. The WACC comes to 10.89%, used as 10.9%.

Sales grow at one rate for five years, then the growth fades to 2.5% by year 10. The operating margin falls from today's 12.08% to the 11.16% of fiscal 2025 by year five. The cash-conversion spread falls to 8.05%, its decade average. Capital spending falls from 22.3% of net sales to 10.1% by year seven.

Cash after year 10 is the terminal value, explained in What Is Terminal Value?. We show it two ways: growing that cash 2.5% a year forever, or applying a multiple of 16.3 times to it.

Our usual multiple of 20 times implies perpetual growth of 5.6%, above the US economy's nominal 4.5% a year from 2000 to 2025. Most of the value sits after year 10 either way: 69% in the perpetual growth case, 75% in the 16.3 times case.

Then change the growth rate until the model reaches $2,757 billion.

The answer is 24.3% a year for five years in the 16.3 times case, or 28.1% on perpetual growth.

Move one lever instead. The price then needs an operating margin of 19.3%, or capital spending of 1.1% of net sales.

Each row fixes capital spending at that share of sales by year seven, then solves for the growth rate. Lower capital spending buys lower growth. Held at today's 22.3%, no rate up to 40% reaches $2,757 billion. The market value needs capital spending to fall.

Growth of 24.3% for five years has happened, when Amazon was far smaller: 32.7% a year from 2007 to 2012, from $14.8 billion.

At today's size the record is thinner. The best single year since net sales passed $300 billion is 21.7%, in 2021. The five years to 2025 compounded 13.2%.

The required five-year rise in net sales is $1,528 billion. The largest Amazon has delivered is $357 billion.

An operating margin of 19.3% has never happened for the whole company; the best full year is 11.16%. Capital spending of 1.1% has not happened either; the lowest in eight years is 5.8%.

Holding the margin at last year's level assumes the business keeps its present shape.

AWS earned an operating margin of 36.9% over the twelve months. The rest of Amazon earned 6.2%. AWS was 19.1% of net sales but 58.4% of operating profit.

So hold each segment's margin where those twelve months left it, then grow the segments at their fiscal 2025 rates. The blended margin reaches 14.10% by year five. The growth needed falls to 19.0%, while those rates produce total growth of only 12.6%. The price still asks for more.

Now use the rates Amazon recorded in the first half of 2026. The blended margin reaches 16.26%. The growth needed falls to 15.9% on the multiple, or 19.3% on perpetual growth.

The segments themselves produce 18.3%. So the price adds up on the multiple. On perpetual growth it falls a point short.

Two items sit outside the model. Net cash ignores $220.2 billion of private-company equity and convertible notes. Commitments on contracts longer than a year, described by Amazon as primarily AWS, went from $244 billion at 31 December 2025 to $496 billion six months later.

These are teaching assumptions. One steady rate sizes the task without predicting the path. The result is no price target and no recommendation.

A reverse DCF turns a market value into the conditions it needs. On fiscal-2025 margins Amazon's needs sales growth of 24.3% a year for five years, never managed at this size.

On the segment mix of the first half of 2026 it needs 15.9% on the multiple, or 19.3% on perpetual growth, against the 18.3% that half-year produced. The answer turns on the mix holding. It also turns on which terminal method you accept.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

The same approach runs through everything else we publish:

Good places to start on the website:

Not in the usual way, because Amazon's free cash flow was negative $11.6 billion over the twelve months to 30 June 2026. Capital spending of $173.0 billion was larger than the $161.4 billion of operating cash the business produced. A DCF that grows a negative figure returns a negative value. A reverse DCF starts from the market value instead, then solves for the growth, margin or capital spending that value needs.

On the inputs we chose, Amazon's market value of $2,748 billion on 15 October 2026, or $254.76 a share, needed net sales to grow 24.3% a year for five years. That takes the operating margin down to the 11.16% of fiscal 2025 by year five. Capital spending falls to 10.1% of net sales by year seven. On perpetual growth instead of a 16.3 times multiple the figure is 28.1%.

Amazon's WACC was 10.89% on 15 October 2026 on our inputs. The model uses 10.9%. The cost of equity was 11.20%, from a risk-free rate of 5.10%, a beta of 1.4532 and an equity risk premium of 4.20%. The cost of debt after tax was 4.39%. Debt was 4.6% of capital.

Capital spending has grown faster than the cash the business produces. Operating cash flow rose from $139.5 billion in fiscal 2025 to $161.4 billion over the twelve months to 30 June 2026. Capital spending rose from $131.8 billion to $173.0 billion over the same period. AWS took 74.0% of net additions to property and equipment.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.