Eagle Capital sees faster AWS growth but warns of intensifying cloud competition
The value investor’s latest letter highlights Amazon’s cloud arm as a key holding, noting that while growth exceeds expectations, rising rivalry among hyperscalers could pressure future returns.
Eagle Capital Management has identified Amazon.com, Inc. as a key holding in its second-quarter 2026 investor letter, pointing to stronger-than-anticipated performance from Amazon Web Services. The firm noted that AWS, alongside Microsoft Azure and Google Cloud Platform, remains a highly profitable business with strong margins and returns on capital. According to Eagle Capital, these cloud businesses are growing faster than previously thought and are expected to become even larger over time.
Despite the positive outlook on growth, the investment management company cautioned that the industry structure has deteriorated compared to previous years. Eagle Capital warned that rising competition among AI labs, hyperscalers, and semiconductor providers could eventually create distinct winners and losers. The firm stated that while it remains a believer in artificial intelligence, it is recycling capital toward opportunities outside the most crowded AI trades to mitigate risks associated with elevated valuations and concentrated demand.
The letter highlighted Amazon’s scale advantages in operating massive consumer platforms that aggregate demand for sellers and advertisers. Eagle Capital observed that Amazon’s retail business benefits from the ability to deploy AI to further press leads against brick-and-mortar peers. The firm noted that while Amazon’s retail operations are more mature than its cloud division, they continue to grow at rates well above gross domestic product with attractive margins.
Furthermore, Eagle Capital suggested that Amazon and MercadoLibre are positioned to benefit more from advertising, consumer search improvements, and warehouse robotic technology than traditional retail competitors. The firm argued that brick-and-mortar peers are unlikely to capture the same efficiencies from these technological advancements. This perspective aligns with the firm’s broader view that current earnings may overstate underlying economics, as semiconductor equipment is depreciated over several years while free cash flow growth remains weaker.
Amazon closed at $259.45 per share on 18 August 2026, reflecting a market capitalisation of $2.8 trillion. The stock posted a one-month return of 5.96 per cent and gained 15.92 per cent over the past 52 weeks. In its first quarter of 2026, the company reported revenue of $181.5 billion, a 17 per cent increase year-over-year.
According to data cited in the report, 353 hedge fund portfolios held Amazon at the end of the first quarter, down from 381 in the previous quarter. Eagle Capital’s portfolio, which includes positions in AWS, Azure, and Google Cloud Platform, currently trades at a 20 per cent market discount with faster expected earnings per share growth.
