Amazon, like its Magnificent Seven (Mag7) competitors $NVDA, $GOOGL, and $MSFT, failed to achieve the anticipated boom over the past five years. For investors, this process has become a story of restructuring plagued by capital efficiency issues rather than a growth-focused technology investment. So, what are the reasons behind this poor performance?

AWS's Loss of Dominance and AI Perception: AWS, the undisputed leader of the cloud market, missed the first wave of the artificial intelligence revolution (GenAI). While Microsoft, through its OpenAI partnership, attracted the perception and budgets of enterprise customers to Azure, Amazon remained defensive. Investors preferred to invest in "next-generation intelligence" (Azure/NVIDIA) rather than "old-generation infrastructure" (AWS).

Post-Pandemic Impact: The company doubled its logistics network to keep up with online shopping demand during the COVID-19 era. When life returned to normal and demand did, Amazon was left with idle capacity, empty warehouses, and an unsustainable fixed cost burden. In 2022-2023, instead of turning a profit, the company struggled to pay rent and maintenance on empty warehouses. This reduced its Free Cash Flow to negative.

Focus Distortion and Business Model Confusion: In my opinion, this is the most important reason. Growth investors favor "purebred" technology margins. For example, $MSFT and $NVDA sell software or chips with gross margins around 40-70%. The majority of Amazon's revenue comes from retail, and retail (especially in an inflationary environment) is a low-margin, logistically expensive, and challenging business. Amazon's massive revenue is diluted by low profitability. Wall Street doesn't value the low-margin revenue generated by retail as much as pure-play technology companies. Furthermore, instead of focusing on its core revenue segment like a typical tech company, Amazon has spent billions of dollars for years on projects outside its core business (low-profit hardware, healthcare initiatives, etc.) that don't generate tangible returns. At a time when markets are demanding "profitable growth," these expenses have weakened its balance sheet.

Valuation Confusion: Amazon isn't a pure technology company; it's a massive retailer like Walmart and Costco, seeking to be priced at technology multiples. Because its low-margin retail revenue overshadows AWS's high-margin structure, it hasn't presented as clean a story to investors as Nvidia, Microsoft, or Google. Amazon isn't a bad company, of course, but it has mismanaged its capital over the past five years and lost the AI ​​narrative to competitors like Microsoft. So, will this company continue this way? Are there no signs of recovery?

In fact, there are. The leadership that CEO Andy Jassy has taken over since 2021 resembles more the financial discipline of a CFO than the visionary approach of Jeff Bezos. Jassy's approach focused on repairing existing structures rather than new innovations, and it proved financially successful:

Regionalization Model: Jassy's most critical move was to divide the national logistics network into eight autonomous regions. For example, a toothbrush could be shipped all the way from California to New York. Now, New York's toothbrushes come from nearby cities like New Jersey. The move to ship products from regional warehouses instead of shipping them across the continent reduced the "cost of service" and returned the retail segment's cash flow (FCF) to positive without the need for an AWS subsidy.

Cost Cuts and Focus: Jassy didn't act emotionally. He shut down unprofitable "zombie projects" (Amazon Scout, Halo, and inefficient Alexa departments). He reduced operational expenses through layoffs and downsizing. He ended the era of "growth at all costs" and ushered in the era of "profitable growth."

Maximizing Ad Revenues: To address the low margins on the retail side, Amazon aggressively leveraged ad space on Prime Video and its shopping pages. High-margin ad revenue became a key pillar supporting the company's bottom line, providing a tremendous source of revenue that masked the company's low retail profits. New CEO Jassy brought the company out of "intensive care" and back to financial health, sure. But you can't grow forever by saving. Amazon has now become a safe but boring haven, like a utility company. What Wall Street really wants is for it to recapture its exciting growth story. So, the real test for growth investors begins now.

Critical Points to Consider

Efficiency Cannot Replace Growth: To maintain its valuation, Amazon needs not only to save money but also to bring growth back to healthy levels on the AWS side.

The AI ​​Chips (Trainium/Inferentia) War: Amazon's future hinges on whether it can reduce its dependence on Nvidia. If Amazon can prove its in-house Trainium chips are a more cost-effective alternative to Nvidia's H100s, AWS's margins could expand significantly. Otherwise, it risks becoming a middleman, passing profits on to hardware suppliers.

Utility Company Risk: Amazon's biggest risk is that it fails to deliver an exciting growth story and instead begins to be priced as a reliable, cash-generating, but slow-growing, boring giant (like a telecom company or Walmart). Ultimately, Amazon has regained operational efficiency under Jassy, ​​but it has yet to fully regain its strategic edge (especially in AI). The company has now completed its "recovery" phase, but it must demonstrate a "re-growth" phase on the technology side. This is precisely what Wall Street wants to see.