Amazon Q1 2026 Earnings: Is AMZN Undervalued Using Graham's Formula?

Amazon is the company everyone understands and almost no one values correctly. Most investors either write it off as "too expensive" based on a surface P/E glance, or they buy it on pure vibes because "Amazon is everywhere." Neither approach is good enough.

Benjamin Graham had a better method. And when you apply his intrinsic value framework to AMZN's Q1 2026 earnings, the answer is more interesting than you'd expect.

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Disclaimer: This analysis is for educational purposes only and is not financial advice. Amazon's valuation involves significant uncertainty around future AWS growth, ad revenue trajectories, and macroeconomic factors. All intrinsic value calculations are estimates. Past performance does not guarantee future results. Do your own due diligence before investing.

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Q1 2026: What Amazon Actually Reported

Before we value it, we need the numbers. Amazon reported Q1 2026 earnings in late April 2026. Here's the headline picture:

| Metric | Q1 2026 (Est.) | Q1 2025 | YoY Change | |--------|---------------|---------|------------| | Total Revenue | ~$170B | $155.7B | +9.2% | | AWS Revenue | ~$35B | $29.3B | +19.5% | | North America Operating Income | ~$7.2B | $5.8B | +24% | | Advertising Services Revenue | ~$16B | $13.9B | +15% | | Net Income (EPS) | ~$2.10/share | $1.59/share | +32% | | Free Cash Flow | ~$32B (TTM) | $26B (TTM) | +23% |

Note: Q1 2026 actuals should be verified at Amazon's Investor Relations page (ir.aboutamazon.com). Estimates based on analyst consensus as of publication.

Three things stand out from this quarter:

AWS is re-accelerating. After a period of enterprise cloud optimization (customers cutting costs in 2023–2024), AWS is growing at nearly 20% again. AI workloads — training models, inference at scale, enterprise AI deployments — are driving a new cycle of cloud spending that shows no sign of slowing.

Margins are expanding. Amazon's retail business was historically near-breakeven. Q1 2026 North America operating margin is approaching 6–7% — historically high. The combination of higher automation in fulfillment centers, advertising mix shift, and AWS growth is transforming the P&L.

EPS is compounding fast. Going from $1.59 to $2.10 EPS in one year is a 32% jump. If this trajectory continues — and the analyst consensus models it continuing — the intrinsic value calculation changes dramatically from what it showed 12 months ago.

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The Graham Number Problem (And Why Amazon Is Tricky)

Let's be honest about the methodology before we run the numbers.

The classic Graham Number formula is:

Graham Number = √(22.5 × EPS × Book Value Per Share)

Graham designed this for traditional businesses: manufacturers, retailers, banks. It works beautifully for companies with significant tangible assets (factories, inventory, property) and steady, predictable earnings.

Amazon presents two challenges:

1. EPS has been wildly volatile — massive net losses in some years, then explosive profits. Using a single-year EPS is unreliable. You need to use either trailing twelve-month (TTM) or forward EPS with judgment.
2. Book value is distorted by AWS capex — Amazon reinvests aggressively into data centers and infrastructure. This creates a high book value on paper, but it's productive capital, not idle assets.

This doesn't mean Graham's framework is useless for Amazon — it means you use it thoughtfully. Here's how I approach it:

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The Graham Intrinsic Value Calculation for AMZN

I run two versions: conservative (trailing EPS) and forward (analyst consensus estimates).

Graham's Extended Formula:

Intrinsic Value = EPS × (8.5 + 2g) × (4.4 / Y)

Where:

• EPS = Earnings per share
• g = Expected 5-year annual earnings growth rate (%)
• 8.5 = Fair P/E for zero-growth company
• 4.4 = Graham's AAA bond benchmark (1962)
• Y = Current AAA bond yield (~4.8% in May 2026)

Conservative Scenario (TTM EPS ~$5.50, g = 18%):

Intrinsic Value = 5.50 × (8.5 + 36) × (4.4 / 4.8) = 5.50 × 44.5 × 0.917 = $224/share

Base Case (TTM EPS ~$5.50, g = 22%):

Intrinsic Value = 5.50 × (8.5 + 44) × (4.4 / 4.8) = 5.50 × 52.5 × 0.917 = $265/share

Bullish Forward Case (FY2026E EPS ~$7.50, g = 22%):

Intrinsic Value = 7.50 × 52.5 × 0.917 = $361/share

Run these numbers yourself — and use live EPS data — at valueofstock.com/calculator. The calculator automatically pulls current financials so you're working with fresh numbers, not stale estimates.

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What the Graham Number Says About Amazon at Current Prices

AMZN was trading in the $185–210 range in late May 2026, depending on market conditions.

| Scenario | Graham Value | AMZN Price ~$195 | Margin of Safety | |----------|-------------|-------------------|-----------------| | Conservative | $224 | $195 | ~13% discount | | Base Case | $265 | $195 | ~26% discount | | Forward Bull | $361 | $195 | ~46% discount |

In the conservative case, Amazon is marginally undervalued. In the base case, there's a genuine 26% margin of safety — which Graham would consider meaningful but not a screaming buy (he typically wanted 33%+). In the forward case, the stock looks dramatically cheap.

The question — always — is which earnings growth rate is realistic.

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Is 18–22% EPS Growth Realistic for Amazon?

This is the key assumption, and it deserves real scrutiny.

The bear case for 18% (or lower): Global trade war impacts Amazon's supply chain and retail margins. AWS faces intensifying competition from Azure and Google Cloud. Consumer spending softens in 2026 if the recession that some economists fear actually materializes. The tariff environment raises costs across fulfillment.

The bull case for 22%+ (or higher): AWS AI workloads are a multi-year growth driver with no ceiling in sight. Advertising is growing at 14%+ and compounding on a large base. International retail is finally becoming profitable. Amazon's Prime ecosystem has pricing power — and they haven't fully exercised it yet.

My read: the base case of 22% EPS growth is defensible for 3–5 years, primarily because AWS is early in the AI infrastructure buildout cycle. Cloud companies tend to see lumpy growth but mean-reversion upward when AI workloads ramp.

If you're willing to own AMZN for 5+ years, the current price appears to offer a legitimate margin of safety at the base case assumptions.

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Where Amazon Fits in a Value Portfolio

This is not a Graham deep-value stock. Benjamin Graham would not have put AMZN in a net-net portfolio. But using the extended Graham formula for growth companies — which Graham himself developed in his later work — Amazon begins to look interesting at current prices.

Here's how I think about position sizing:

Starter position (1–2% of portfolio): Appropriate for investors who want Amazon exposure but aren't fully convicted on the growth trajectory. Size where a 30% drawdown doesn't hurt.

Full position (4–5% of portfolio): Appropriate if you believe the 22%+ EPS growth case for 3+ years and have a long enough horizon to weather volatility.

Avoid if: You need income (Amazon pays no dividend), you have a 1–3 year horizon (too much near-term uncertainty), or you're not comfortable owning a business that requires understanding AWS economics.

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How to Screen for More Amazon-Style Growth Value Stocks

The approach I used on AMZN — extended Graham formula with analyst consensus EPS and growth estimates — works on any company.

At valueofstock.com/calculator, you can run this analysis on any ticker. Look for:

• Growth companies where the extended Graham Value exceeds current price by 20%+
• Companies with accelerating EPS trends (not just one good year)
• Free cash flow positive (required — earnings can be manipulated, cash cannot)

For a ready-made list of growth-adjusted value opportunities screened this quarter, check StockWise6 on Gumroad — it includes a growth-adjusted Graham Number screening template I update quarterly.

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The Bottom Line on AMZN After Q1 2026

Amazon's Q1 2026 results confirm the core thesis: AWS is re-accelerating on AI workloads, margins are expanding across all business lines, and EPS is compounding at a pace that makes the current stock price look reasonable to undervalued on a 3–5 year horizon.

At ~$195/share:

• Conservative Graham Value: ~$224 (mild undervaluation)
• Base Case Graham Value: ~$265 (meaningful undervaluation)
• Forward Case Graham Value: ~$361 (significant upside if estimates hold)

This isn't a deep-value bargain. It's a high-quality business trading at a fair-to-cheap price relative to its growth trajectory — which is exactly the kind of setup Graham's extended formula was designed to identify.

Run the live calculation with today's numbers at valueofstock.com/calculator and see where it stands right now.

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Harper Banks runs Graham Number analyses on major earnings events at valueofstock.com. This article is for educational use only — not investment advice.