Amazon: Following Rufus.

Q3 2025 ER Digest

This is an update of my original January 2023 Amazon deep dive in which, following a stock price decline of ~50%, I highlighted the extraordinarily asymmetric nature of the setup.

Amazon stock is up 143% since.

AI is accelerating Amazon’s value creation process. Q3 2025 results indicate that AI CapEx is translating into incremental value delivered to end customers.

As Amazon’s free cash flow (per share) continues to trend down with CapEx going up, one single datapoint caught my eye in the Q3 2025 earnings call. Amazon customers are 60% more likely to buy something when using Rufus. As AI models continue to double their capacity every 6 months (paraphrasing CEO Satya Nadella, from some quarters ago), how much incremental conversion may we see? As I pointed out in yesterday’s video, when something doubles every 6 months it actually only takes it ~3.5 years to increase by 100X (two orders of magnitude). See Jassy’s remarks about Rufus, during the Q3 2025 earnings call:

The stores team is also innovating rapidly with AI. For example, Rufus, our AI-powered shopping assistant has had 250 million active customers this year with monthly users up 140% year-over-year, interactions up 210% year-over-year and customers using Rufus during a shopping trip being 60% more likely to complete a purchase. Rufus is on track to deliver over $10 billion in incremental annualized sales.

It’s strange because human minds can’t grasp non-linear functions. But if you look at the numbers, we are on a rapid progression to a Star-Trek-like future. And this progression is visible across all of Amazon’s business, which is yielding more output per unit of input as AI models continue to improve. For example, customers are spending twice as much time talking to Alexa+ as they spent talking to Alexa. Cohere Health, an AWS customer, has deployed agents leveraging Amazon’s Agent Core that “will” reduce medical review times by up to 30% to 40. Year-to-date, customers have already used Amazon’s agentic migration tool called Transform to save 700,000 hours of manual effort, which is the equivalent of 335 years of developer work.

Simply out, value creation processes are accelerating because AI is enabling Amazom (among other companies) to provide exponentially more value per dollar to customers.

Further, plenty of companies mentioned Palantir in their respective earnings calls in Q2 2025, accrediting Palantir’s digital twins for radically accelerating their value creation processes. On a similar note, Jassy stated the following during the Q2 2025 earnings call:

You’re going to see us continue to be very aggressive in investing in capacity because we see the demand. As fast as we’re adding capacity right now, we’re monetising it. It’s still quite early and represents an unusual opportunity for customers in AWS.

My general impression is that AI is delivering more value to end-customers per dollar spent, across the board. While the knee-jerk reaction is to call this a bubble, it’s fundamentally different to what happened in 2001, in which there was no actual causal relationship between CapEx and value creation. In the past twelve months, Amazon has deployed 3.8gW of incremental compute capacity, plans to deploy another gW in Q4 2025 alone and also plans to double compute capacity by 2027. For now, my focus remains on value creation processes and if anything, on Jassy’s remarks about them - not on the bubble chatter.

Interestingly, AWS revenue growth is accelerating on a massive revenue base. When thinking about AI value creation processes, the mind-boggling numbers that you get by modelling non-linear assumptions abruptly hault the neuronal activity of average the investor. AWS begins to showcase how big numbers are not a reason to stop thinking:

AWS is growing at a pace we haven’t seen since 2022, reaccelerating to 20.2% Y/Y. Our largest growth rate in 11 quarters. It’s very different having 20% Y/Y growth on a $132B annualized run rate than having a higher percentage growth rate on a meaningfully smaller annual revenue, which is the case with our competitors.

-Amazon CEO, Andy Jassy during the Q3 2025 earnings call.

Until next time!

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