Why Amazon Remains the Magnificent Seven's Most Unbalanced Play

2025-12-26 04:03:14

When Amazon reported earnings recently, AWS delivered the performance that relief markets were waiting for. The cloud division has been losing ground to competitors like Microsoft Azure and Google Cloud, but latest results showed signs of recovery. Here’s the reality: AWS is undeniably Amazon’s crown jewel—it drives cash flows and profitability that subsidize the retailer’s entire operation.

But that concentration is precisely the problem.

The Diversification Dilemma

Compare Amazon’s business model to its Magnificent Seven peers, and a stark imbalance emerges. Microsoft doesn’t live or die by one segment. If Azure faces headwinds, Redmond has Office software, gaming, and AI monetization across the enterprise. Alphabet built its empire on Google Search, yes, but it’s now embedding Gemini AI throughout its search experience while simultaneously scaling YouTube, Android, and Waymo.

Amazon lacks this safety net. Strip away AWS, and the company’s core retail business produces underwhelming margins. The online retailer transformed into a cloud computing powerhouse, but that dependency creates existential risk. A slowdown in cloud computing growth—or a market share loss to Azure or Google Cloud—would directly threaten Amazon’s financial foundation in ways that simply wouldn’t impact Microsoft or Alphabet.

The Magnificent Seven includes Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, and Tesla. Among them, only two are outperforming the S&P 500 so far in 2025: Nvidia and Alphabet. Amazon’s unbalanced revenue streams explain why it trails more versatile competitors.

The Shareholder Dilution Problem

There’s another issue that separates Amazon from the pack: capital allocation discipline.

Apple aggressively repurchases stock. Microsoft actively buys back shares and pays more dividends than virtually any U.S. company. Meta and Alphabet have ramped up buyback programs and introduced dividends. Even Nvidia now repurchases significantly more stock than it issues through employee compensation—boosting per-share value.

Amazon? It hasn’t repurchased meaningful amounts of stock in years. Meanwhile, the company distributes substantial stock-based compensation to employees. The math is simple: more shares outstanding = existing shareholders own a smaller slice of earnings. This dilution compounds over time, and investors shoulder the opportunity cost.

Pouring cash into R&D instead of buybacks can accelerate earnings growth if the bets pay off. But it’s an aggressive, high-risk gambit. If AWS loses market share or Amazon’s growth disappoints, shareholders will rightfully question why management didn’t reward them with stock repurchases or dividends.

A Decent Bet, But Not Compelling

Amazon is a reasonable buy on AWS fundamentals alone. The segment remains valuable and generates reliable returns. But it’s significantly less attractive than Nvidia, Microsoft, Meta, or Alphabet for 2026. Those four Magnificent Seven names offer either more diversified revenue streams, more shareholder-friendly capital allocation, or both—reducing downside risk while maintaining growth potential.

For investors choosing where to deploy capital among tech titans, Amazon represents a middle-tier opportunity in an elite group.

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