Amazon (AMZN): The infrastructure tax that wins no matter what

Everyone thinks Amazon is a retailer. It’s not. It’s a tollbooth operator collecting fees on cloud computing, e-commerce, and digital advertising — three of the largest markets in the global economy. The company generated roughly $38 billion in free cash flow in 2024 while most people were still comparing it to Walmart. Here’s why that framing is wrong, how the infrastructure tax actually works, and what it means for your portfolio.

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The infrastructure tax, explained

Amazon doesn’t make most of its money selling products. It makes money by taxing other businesses that use its infrastructure.

AWS (cloud) did $105 billion in 2024 revenue at roughly 30% operating margins. Advertising crossed $50 billion in reported revenue at estimated margins well above 50%. Retail — the business everyone still associates with Amazon — generated the bulk of revenue, but at thin single-digit margins.

The infrastructure businesses (AWS and ads) account for a fraction of total revenue but drive the majority of profit. Retail is just the customer acquisition layer.

Segment 2024 Revenue Est. Operating Margin Role in the Model AWS ~$105B ~30% The profit engine Advertising $50B+ reported Est. 50%+ Pure margin on existing traffic Retail Bulk of $638B Low single digits Customer acquisition layer

It gets better. When a third-party seller lists a product on Amazon, the company collects referral fees (8-15%), fulfilment fees, advertising spend, and payment processing — four revenue streams from a single transaction, Amazon didn’t even stock inventory for. These third-party services carry significantly higher margins than first-party retail and are growing faster.

The AWS flywheel compounds this further. Companies building AI applications need massive compute, and AWS commands around one-third of global cloud infrastructure. Its generative AI services, including the Bedrock platform, are at a multi-billion-dollar revenue run rate, growing triple digits. AI applications built on AWS feed back into Amazon’s ad targeting and shopping tools (like Rufus, the AI shopping assistant), which drive more commerce, which drives more infrastructure usage. The flywheel spins.

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Advertising: The quiet monster

Amazon’s ad business deserves its own spotlight because it’s the most underappreciated part of the thesis.

The advertising segment is now on a roughly mid-$60s billion annual run rate — making Amazon the third-largest ad platform globally behind Google (~$260B) and Meta (~$160B). But here’s the difference: Amazon’s ads convert at dramatically higher rates because they reach shoppers at the exact moment of purchase intent. Advertisers aren’t paying for eyeballs — they’re paying for sales.

And the infrastructure is already built. The marketplace, payment rails, and logistics network exist. Adding advertising on top requires almost zero incremental investment. It’s pure margin expansion on existing traffic.

Now add Prime Video. Amazon launched ads on the streaming platform in 2024, and ad-supported reach now exceeds 300 million monthly viewers globally. Unlike Netflix building an ad business from scratch, Amazon already operates a massive ad platform — it just added 300 million more eyeballs with first-party shopping data for targeting. That’s a combination no other streaming service can match.