Navigating Trough the Cycles: Learnings and Tools for Long Term Progress
I’ve followed the public debate on whether this technology is over-hyped, whether we’re in “a bubble,” and if the margins and ROIC will be appealing. My strong conviction, at least for Amazon, is that the answers are no, no, and yes. Here are some truths that are hard to debate.
Progress is Not a Straight Line and Companies must be able to Navigate
Jassy starts the letter with the learning that progress is almost never a straight, upward-trending line in long-term endeavours. Progress often involves stalling, moving backward, or navigating “squiggly lines” due to complex global issues, competitors, and technological shifts. Jassy emphasizes that durable companies must be skilled at managing these large-scale inflections, such as AI, robotics, and space industrialization.
To navigate these non-linear jumps, Amazon focuses on five core strategic philosophies:
1. Invent the Next Inflections: Be the One Inventing the Future
Rather than waiting for change, Amazon seeks to actively invent the future to make customers’ lives easier. Key areas of current invention include:
- Robotics: Amazon now operates over one million robots in its fulfillment centers to speed up delivery, reduce costs, and improve worker safety. The company sees this as just the early stages of its robotics journey.
- Rural Expansion: While competitors retreat from expensive rural markets, Amazon has committed over $4 billion to expand its rural delivery network.
- Broadband Connectivity (Amazon Leo): To close the digital divide, Amazon has deployed over 200 low Earth orbit satellites, with thousands more planned. Scheduled for official launch in mid-2026, Leo will offer faster speeds at lower costs and integrate seamlessly with AWS. Major clients like Delta Airlines have already signed on.
2. Two is Greater Than Zero: Pursue Parallel Paths
Jassy argues that companies often focus too much on finding a single “tidy” solution rather than funding multiple efforts to ensure a successful outcome.
- Ultra-Fast Delivery: Amazon is attacking delivery speed through three simultaneous avenues: Same Day Fulfillment Centers (SSDs) , Prime Air drone delivery (aiming for sub-30-minute delivery) , and Amazon Now (20-minute delivery via micro-fulfillment centers, currently booming in India).
- Grocery: After acquiring Whole Foods in 2017 and testing various store formats, Amazon’s major breakthrough has been integrating fresh perishables into its Same-Day Delivery network. Perishables sales grew 40 times since early 2025, helping Amazon become the second-largest grocer in the U.S. with over $150 billion in gross sales.
3. Bet Big on Disproportionate Shifts: AWS & now AI
Three years after AWS launched commercially, it had a $58 million revenue run rate. Three years into this AI wave, AWS’s AI revenue run rate is over $15 billion in Q1 2026 (nearly 260 times larger than AWS at that same point)—and ascending rapidly.
AWS could be growing even faster. AWS added 3.9 gigawatts (“GW”) of new power capacity in 2025, expects to double total power capacity by the end of 2027, and is monetizing that capacity as fast as it’s installed.
When a truly game-changing shift is identified, a company must invest as aggressively as responsibly possible, even if it disrupts smooth financial horizons.
- The AI Revolution: Jassy equates the impact of AI to electricity, noting that while electricity took 40 years to transform industries, AI is moving ten times faster.
- AWS Dominance: In Q1 2026, AWS’s AI revenue run rate surpassed $15 billion. Customers are choosing AWS for its broad model-building tools (SageMaker, Bedrock) and superior security.
- Custom Silicon: Amazon’s proprietary chips (Graviton for CPUs, Trainium for AI) offer massive price-performance advantages over competitors. The chips business has an annual revenue run rate of over $20 billion, which would be roughly $50 billion if sold standalone to third parties.
- Capital Expenditures: Amazon plans to spend approximately $200 billion in capex in 2026, primarily to build AWS data centers and power infrastructure. While this hurts short-term Free Cash Flow, it is backed by massive customer commitments (including a $100 billion+ deal with OpenAI) and is expected to yield substantial long-term returns.
Our chips business is on fire, changes the economics for AWS, and will be much larger than most think…
Trainium3, which just started shipping at the start of 2026 and is 30-40% more price-performant than Trainium2, is nearly fully-subscribed.
4. Go Back to the Starting Line
Sometimes, new technologies like Generative AI require abandoning a successful, established architecture to build something entirely new.
- Amazon Bedrock: The team recognized their existing engine couldn’t scale. A small team of six engineers rebuilt a completely new architecture (”Mantle”) in just 76 days, which processed more tokens in Q1 2026 than in all prior years combined.
- Alexa: Despite having 600 million active endpoints, Amazon completely rewired Alexa’s “brain” to create the generative AI-powered Alexa+. The result is that customers are talking to Alexa twice as much and completing purchases three times more.
5. Cultivate a Culture for “Squiggly Lines”
To survive constant industry inflections, Amazon operates like the “world’s biggest startup”. This requires flattening the organization for faster decision-making, encouraging relentless experimentation, and maintaining the resolve to be “comfortable being misunderstood for long periods of time” while navigating transformational changes.
2025 Financial Performance Analysis
Despite massive infrastructure investments, Amazon posted a very strong year financially:
- Revenue: Grew 12% year-over-year to $717 billion.
- North America: $426 billion (+10%).
- International: $162 billion (+13%).
- AWS: $129 billion (+20%).
In Q4 2025, AWS reported 24% YoY growth with a $142 billion dollar revenue run rate. That’s a lot of absolute growth. And yet, we still have capacity constraints that yield unserved demand.
…two large AWS customers have already asked if they could buy *all* of our Graviton instance capacity in 2026…
- Operating Income: Improved 17% to $80 billion (a margin increase from 10.8% to 11.2%).
- Free Cash Flow (FCF): Decreased sharply from $38 billion to $11 billion. The document explicitly notes this drop was driven by a $50.7 billion increase in property and equipment purchases, strictly reflecting capital expenditures for artificial intelligence infrastructure. We note the Free Cash Flow would be $61.7 billion of +63% YoY if it wasn’t for the AI capex for future cash flow generation.
Future Outlook
Jassy concludes with extreme optimism. He points out that despite Amazon’s massive scale, 80% of global retail still occurs in physical stores, and 85% of global IT spend remains on-premises—indicating a massive runway for growth in both Retail and AWS. Ultimately, AI will act as a multiplier across all these efforts, reshaping every customer experience the company offers.
Thank you,
CoreValue Research
