Amazon's Disappointing 2025, AWS Growth Accelerates
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jan 25 2026
0mins
Should l Buy AMZN?
Source: NASDAQ.COM
- Disappointing Shareholder Returns: Amazon's stock gained only 5% in 2025, primarily due to valuation issues with its cloud computing unit, AWS, which traded at a high forward P/E of 44 times, hindering overall stock performance.
- Importance of Cloud Business: Although AWS accounts for only 18% of Amazon's total sales, it contributed 66% of operating profits in Q3, showcasing its strong profitability with a 35% operating margin, highlighting its core strategic role in the company.
- Accelerating Growth Rate: AWS revenue increased by 20% year-over-year in Q3, marking its best performance in several years, and if this growth momentum continues, it is expected to significantly boost Amazon's stock price in 2026, improving investor sentiment.
- Valuation Rebound Opportunity: Amazon's current P/E ratio has dropped to 29 times, nearing historical lows, presenting an excellent buying opportunity, especially as most tech stocks remain at 30 times forward earnings, indicating potential for market reassessment of Amazon.
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Analyst Views on AMZN
Wall Street analysts forecast AMZN stock price to rise
44 Analyst Rating
41 Buy
3 Hold
0 Sell
Strong Buy
Current: 210.570
Low
175.00
Averages
280.01
High
325.00
Current: 210.570
Low
175.00
Averages
280.01
High
325.00
About AMZN
Amazon.com, Inc. provides a range of products and services to customers. The products offered through its stores include merchandise and content it has purchased for resale and products offered by third-party sellers. The Company’s segments include North America, International and Amazon Web Services (AWS). It serves consumers through its online and physical stores and focuses on selection, price, and convenience. Customers access its offerings through its websites, mobile apps, Alexa, devices, streaming, and physically visiting its stores. It also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, Ring, Blink, and eero, and develops and produces media content. It serves developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions, through AWS, which offers a set of on-demand technology services, including compute, storage, database, analytics, and machine learning, and other services.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Substantial Capital Expenditure Increase: Management expects capital expenditures to reach $200 billion in 2026, sharply up from $131 billion in 2025, reflecting Amazon's ambitious goals in AI and a significant financial commitment to infrastructure development.
- Diversified Revenue Support: Although Amazon's trailing-12-month free cash flow fell to $11.2 billion, its operating cash flow increased by 20% year-over-year to $139.5 billion, demonstrating strong performance in high-margin segments like advertising and subscriptions, enabling self-funding for AI infrastructure investments.
- Market Risks and Opportunities: Despite risks of waning market appetite for AI software, Amazon's diversified business model and robust operating cash flow present an attractive long-term investment opportunity, allowing investors to capitalize on the current stock price pullback for future growth.
See More
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- Escalating Threats: The IRGC's plan to target U.S. tech companies in the Middle East, including attacks on Amazon's data centers, could slow growth for these firms, forcing them to either increase spending or potentially exit the region altogether.
- Amazon's Investment Outlook: Despite the attacks, Amazon continues its investment strategy, planning a $5.3 billion investment in Saudi Arabia by 2026, indicating a long-term commitment to the region, which represents a small fraction of its global network of over 900 data centers.
- Microsoft's Capital Expenditure: Microsoft has pledged $15.2 billion in investments in the UAE by the end of the decade, yet its overall capital expenditure is projected to reach $145 billion in fiscal 2026, highlighting the relatively minor scale of its Middle Eastern investments.
- Nvidia's Sales Potential: Nvidia's agreements to sell AI accelerators in Saudi Arabia are estimated to be worth between $15 billion and $20 billion, yet its revenue for fiscal 2026 is projected at $216 billion, suggesting that the Middle East's impact on its overall performance is limited.
See More
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- Sales Surge Anticipation: Nvidia expects to achieve $1 trillion in sales from Blackwell and Vera Rubin chips over the next year, indicating strong market potential driven by surging AGI demand, which could reshape its profitability model.
- AGI Achievement Signal: CEO Jensen Huang's claim of achieving AGI may signal a productivity revolution, prompting companies to realize significant efficiency gains in both white-collar and physical labor sectors, thereby transforming industry dynamics.
- Competitive Market Advantage: With the rise of AGI, Nvidia is poised to benefit significantly by selling more AI chips, especially as white-collar jobs face automation, further solidifying the company's market position.
- Amazon's Potential Gains: The realization of AGI could enable Amazon to unlock substantial benefits in automation, particularly in customer service and warehouse operations, expected to enhance profit margins and optimize operational efficiency.
See More
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- Online Returns Challenge: The National Retail Federation estimates that by 2025, 15.8% of retail sales will be returned, with online returns reaching 19.3%, significantly impacting retailers' profit margins and driving the need for effective solutions to protect profitability.
- AI Technology Implementation: AI startup Catches has launched a virtual try-on platform that allows users to create a 'digital twin' for 'mirror-like realism', which is now live on luxury brand Amiri's website, aiming to reduce returns caused by fit issues.
- Enhanced Purchase Experience: Catches projects a 10% increase in conversion rates and a 20 to 30 times return on investment for brand partners, showcasing the potential of AI to boost consumer confidence and reduce return rates.
- Industry Trends: Retailers like Zara and ASOS are adopting virtual try-on tools and return fee strategies, indicating that AI technology is becoming a critical tool for the fashion retail industry to address high return rates and maintain profitability in a competitive landscape.
See More
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- Return Rate Challenge: The National Retail Federation estimates that by 2025, 15.8% of retail sales will be returned, with online sales seeing a staggering 19.3% return rate, significantly impacting retailers' profitability and driving them to seek AI solutions to mitigate returns.
- Virtual Try-On Technology: AI startup Catches has launched a virtual try-on platform that allows users to create a 'digital twin' for clothing trials, utilizing physics to simulate fabric texture, which is expected to significantly enhance online sales conversion rates for luxury brands and drive profit growth.
- Market Response: Retailers like Zara and ASOS have begun implementing virtual try-on tools and return fee policies, with Zara successfully protecting its gross margin through these measures, while ASOS reported a 160 basis point reduction in return rates, showcasing the potential of AI technology in improving profitability.
- Industry Outlook: As AI technology continues to advance, it is expected to drive transformation across the retail sector, with Catches projecting a 10% increase in conversion rates and a 20 to 30 times return on investment for brand partners, indicating the growing significance of AI in retail.
See More
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- Financial Health Overview: Amazon's commitment to $200 billion in capital expenditures by 2025, despite holding $123 billion in liquidity, raises concerns about potential financial impacts if AI growth slows.
- Growth Potential Analysis: MercadoLibre achieved a 44% year-over-year revenue growth in 2025, but its profit increase of less than 5% due to rising provisions for doubtful accounts highlights challenges in a competitive landscape.
- Investor Choice Recommendation: While MercadoLibre offers more growth potential, Amazon's solid growth numbers and market leadership position it as a more suitable choice for risk-averse investors.
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