Amazon's AI-driven growth justifies its heavy spending and debt, but the negative free cash flow and rising leverage make both bullish and bearish stances reasonable.

Baupost added 20% to their Amazon stake, which is right at the top of their portfolio, now occupying 16%. So, it is ripping clear in that number one spot.

But, interestingly this quarter, I also want to point out that Bill Ackman, who we spoke about last quarter for buying Amazon, well, he's actually pulled back. He's reduced his Amazon stake by 25%.

So, confusing signals. What the hell is going on? One buying, one selling. Well, the truth is they both might be right.

So, remember back in February the market panicked over roughly 200 billion of planned 2026 CapEx. The stock dropped like 18% in a week. Then, fast forward to their Q2 results in July, Amazon didn't back off the spending.

In fact, they raised it again to 220 billion off the back of increased AWS demand.

But, this time the market didn't panic. The stock actually jumped about 9% on the report because AWS growth accelerated to 37%, the fastest pace since 2021.

And the backlog of contracted future business also swelled to 496 billion. So, the demand side of the AI story is showing up in their numbers now. It's not just the spending side.

And because of that, the stock has absolutely ripped since. But, of course, the trade-off here is that free cash flow has now gone properly negative. Simply Wall Street has it at -11.6 billion over the trailing 12 months.

And Amazon is increasingly tapping the debt markets to fund this big investment phase that it's going through, including a fresh 25 billion-dollar bond raise this quarter. So, you can see an argument either way here without either investor being wrong.

Kliman may be looking at 37% AWS growth, a swelling backlog, and Simply Wall Street's discounted cash flow model, which has the stock nearly 39% undervalued.

And he might be looking at that deciding, "You know what? The growth more than justifies the debt they're taking on." Whereas Ackman, he might be looking at the negative free cash flow and the rising leverage and deciding whether he'd prefer to just lock in profits after this massive run that they've been on.

So, you can see it either way. Honestly, neither read is unreasonable.

So, that's the Amazon stake.