I think Amazon is worth it. Sun launched cloud computing (http://slashdot.org/article.pl?sid=05/02/02/1839225&tid=...) all the way back in early 2005, while Amazon didn't even start public beta testing until August 2006. The real appreciable difference is marketing and positioning. When Sun launched their service, nobody could tell why it was interesting, when Amazon launched they created an industry.
What I think makes Amazon worth the money is their ability to enter a market that is incidental to online retail, and dominating it so thoroughly so quickly. If I heard Google was entering my market, I would be nervous, if I heard Amazon was entering my market, I would run.
First value - you can think Amazon will dominate a market. To know if they are worth a price, you need some idea of the their earnings in that market and the return you want.
Another perspective is special insight. A company that executes wonderfully and that everyone can see is just brilliant is probably not undervalued. It is probably fairly valued because everyone agrees. To have a view that Amazon is undervalued you need to have some special insight that others in the market don't have. You don't care what the current view of earning is, the market has already taken that into account, you know they are going to do something wonderful that others don't. You buy based on that and sell once the insight is more broadly known.
I'm aware of that. The market for cloud computing should grow 50-100x in the next ten years, and Amazon is well positioned to capture almost all of it, with declining costs and increasing profit. Not only that, they will be a serious threat to iTunes with their book distribution. They should also be able to displace Craigslists and Ebay for the sale of used goods. Their service is easier, faster, and usually generates higher prices.
The analysts are still undervaluing cloud services, and haven't really talked too much about the Amazon marketplace ecosystem. Ebay is worth about $37B alone, so if Amazon can soak up chunks of that market, their value will go up tremendously. Used goods can probably still grow 1,000x at Amazon. Also, expect major growth in their fulfillment services. Once awareness of that picks up, they can probably take that industry and do long-tail order fulfillment for everyone selling anything online, through Amazon or not. Like I said, Amazon is definitely worth a 3x premium on Google, simply because they have so many different places they can grow revenue, and almost everything they're getting involved in has the potential to be huge businesses with clear paths to revenue.
What I think makes Amazon worth the money is their ability to enter a market that is incidental to online retail, and dominating it so thoroughly so quickly. If I heard Google was entering my market, I would be nervous, if I heard Amazon was entering my market, I would run.