Just last week, Amazon (AMZN) announced that it would expand its Same-Day Delivery service to include perishable grocery items at no additional cost for Prime members, putting it in direct competition with retail giants like Walmart (WMT). This move could spark two reactions from investors: concern over margin pressure or recognition that Prime is solidifying its role as the essential operating system for the American household.
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While margin erosion may be a near-term risk, I believe the latter view better captures Amazon’s long-term value proposition—supporting my bullish stance that AMZN remains one of the market’s most compelling stocks.
Financial Firepower for the Final Frontier
Before diving into frozen pizza and milk, it’s worth stepping back. Amazon has significant room to experiment, backed by strong financial performance. Its Q2 2025 results show the business firing on all cylinders, generating the massive cash flow needed to bankroll a long-term, capital-heavy push into the $1 trillion-plus U.S. grocery market.
Amazon’s core strength lies in its ability to leverage existing advantages—such as logistics, scale, and capital—to break into new markets. A prime example is Amazon Web Services, launched in 2006, more than a decade after the company’s founding. Today, AWS has grown into a powerhouse, generating $30.9 billion in revenue in Q2 alone. Of course, not every experiment succeeds—take the failed Fire Phone, for instance—but unlike a typical entrepreneur who risks losing everything, Amazon has the financial cushion to absorb the occasional flop.
For years, a common trope around Amazon was that it had to continually sacrifice profitability in pursuit of growth. Thanks to AWS, that’s no longer the case. The company is now simultaneously expanding both revenue and profits, showcasing impressive operating leverage. Meanwhile, Amazon’s core e-commerce business remains robust. North America segment sales rose 11% year-over-year to $100.1 billion in Q2, supported by its massive, regionalized U.S. fulfillment network that positions inventory closer to customers. This not only enables faster delivery—often the same day—but also lowers average shipping distances, creating cost efficiencies that reinforce Amazon’s competitive moat.
It’s Not About Groceries, It’s About the Flywheel
Amazon’s move to expand Same-Day Delivery into groceries should be seen in context. This isn’t a speculative experiment like the Fire Phone. Having already absorbed the heavy capital costs of building a faster, more efficient fulfillment network for general merchandise, Amazon can now leverage those “sunk costs” to attack the grocery vertical. Adding temperature-controlled zones to existing advanced facilities is far less expensive than building a cold-chain logistics network from scratch—positioning Amazon, quite literally “primed,” to capture share in the grocery market.
But the real story may lie in the indirect benefits. Fresh groceries increase customer stickiness by creating high-frequency, routine purchases that embed Amazon into daily consumer behavior. They also generate valuable data to enhance ad targeting and expand the company’s high-margin advertising business. Most importantly, free, fast grocery delivery raises the value of a Prime membership, helping drive new sign-ups while justifying future price hikes. In short, Amazon’s Same-Day grocery push doesn’t just add a new revenue stream—it accelerates the flywheel.
Navigating the Headwinds
That said, risks remain. The unit economics of online grocery are notoriously tricky. McKinsey & Company estimates that a $100 online grocery order can produce a net loss of about $13, a key reason so many companies have struggled to make the model profitable. While Amazon’s scale provides an edge, its margins could take a hit if grocery losses aren’t offset quickly, particularly in the early adoption phase.
This risk is compounded by the fact that Amazon’s margins are already under strain from heavy AI investments. On top of that, entrenched competitors like Walmart—currently the leader in online grocery—are unlikely to cede ground easily. The result could be a prolonged, costly battle that squeezes profitability across the sector.
Is Amazon a Buy, Hold, or Sell?
On Wall Street, AMZN earns a consensus Strong Buy rating based on 44 Buy, one Hold, and zero Sell ratings in the past three months. AMZN’s average price target of $265.22 implies an upside potential of 15% over the next 12 months.
Amazon’s Grocery Bet Could Reshape Retail
In summary, Amazon’s expansion into same-day perishable delivery is about more than selling groceries—it’s another step in a decades-long strategy to become the central utility of American commerce. While entering the notoriously difficult grocery sector carries risks, including margin pressure and fierce competition, Amazon’s scale, financial strength, and operational capabilities position it to not only redefine the retail landscape but also further entrench Prime as the essential gateway to modern consumer life.