{{articledata.title}}

Investing.com -- Moody's Ratings has revised the outlook for Amazon.com Inc (NASDAQ:AMZN) from stable to positive. The ratings agency also confirmed Amazon's A1 senior unsecured notes ratings and Prime-1 commercial paper program ratings. Whole Foods Market, Inc., owned by Amazon, also saw its outlook revised to positive from stable, and its A1 senior unsecured notes rating was affirmed.

The change in outlook is a reflection of Amazon's improved operational performance, which has led to a significant generation of free cash flow. This has supported an acceleration in capital spending while maintaining low leverage and high cash balances. Amazon's global brand strength, synonymous with online retail, and the profitability of Amazon Web Services (AWS), a leader in the cloud computing market, were also factors in the affirmation.

Amazon's operational performance improvements in its North America and International segments have resulted in a credit metrics improvement, with RCF/Debt at 81.6% for the year ended December 31, 2024. Amazon is in a strong position to support higher capital investments with internal cash flow as it increases capital spending on AWS and its generative Artificial Intelligence (AI) investments.

The ratings for Amazon's A1 senior unsecured notes and Prime-1 commercial paper program are a reflection of its leadership position in online retail and the cloud computing market. Amazon's operating income has improved significantly, supported by enhanced productivity and reduced per unit costs due to regionalized fulfillment, which also improves delivery speed. AWS has also benefited from increased demand for cloud and AI services.

Amazon has built a solid ecosystem of entertainment content, operates a strong third-party seller business, and generates a solid and growing profit stream from advertising. Net capital spending is expected to expand as Amazon invests in AWS to increase capacity to meet growing cloud demand and develops its AI capabilities.

Despite facing future challenges from the growing online presence of brick-and-mortar retailers and increasing competition from larger, well-capitalized companies in AWS' market, Amazon is well-positioned to benefit from the growth in Gen AI. The company has strong liquidity, with cash and cash equivalents exceeding $78 billion, a $20 billion commercial paper program with no borrowings as of December 31, 2024, and is expected to generate positive free cash flow after capital investments in fiscal 2025.

The positive outlook reflects Moody's view that Amazon will maintain its strong credit metrics and liquidity as continued profit growth funds its capital investments and supports positive free cash flow. Financial strategies are expected to remain conservative as capital investments accelerate to meet the rapid growth at AWS.

An upgrade in ratings would require consistent profit growth, stable operating margins, strong liquidity, positive free cash flow, and a robust cash and investments to debt position. A downgrade could occur if operating performance weakens, investments do not yield returns, or if its financial strategy becomes significantly more aggressive with regard to cash returned to shareholders or acquisitions.

This content was originally published on http://Investing.com