Amazon (AMZN) has posted only modest gains this year—rising about 4.3% in 2025 versus more than 18% for the S&P 500 (SPX). Yet the stock’s muted performance belies what I believe is significant upside ahead. AWS growth is clearly reaccelerating, Amazon’s high-margin advertising business continues to scale, and company-wide profitability is improving. With the shares still trading below their historical valuation multiples, the setup going into 2026 looks increasingly compelling. I remain firmly bullish on Amazon’s prospects next year.
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AWS Reacceleration Marks a Major Turning Point
AWS is Amazon’s most important business—its profit engine, its key competitive moat, and increasingly its AI infrastructure platform. The segment had been weighed down for much of 2023 and early 2024 by cloud optimization trends, but growth reaccelerated sharply in Q3 2025. AWS delivered revenue of $33 billion, up 20.2% year-over-year, representing the fastest expansion since Q4 2022 and exceeding expectations by more than 200 basis points. This inflection is crucial because it indicates not only stabilization but a new AI-driven cloud cycle.
The acceleration was underpinned by robust demand across both core cloud workloads and emerging generative AI services. Amazon highlighted that AWS would have grown even faster this year if not for near-term capacity constraints. That comment alone signals a stronger underlying demand profile than currently reflected in consensus estimates.
AWS backlog—a leading indicator of multi-year cloud commitments—expanded to an impressive $200 billion in Q3, powered by rapid adoption of Trainium2 AI chips and multi-billion-dollar compute contracts from hyperscale customers. Operating income surged to $11.4 billion, underscoring AWS’s extraordinary profitability and its role in driving Amazon’s overall margin expansion.
Most importantly, Amazon laid out its most extensive infrastructure expansion roadmap in years. Management expects AWS capacity to double by 2027, following a doubling since 2022. More than one gigawatt of new capacity will come online in Q4 alone.
Historical precedent suggests that every incremental gigawatt of AWS capacity can support roughly $3 billion in annual revenue. Applying this to Amazon’s planned build-out implies that consensus estimates for AWS revenue in 2026 and 2027 are too low by double-digit percentages. Even assuming conservative price declines, the math points to 14% upside to 2026 AWS revenue expectations and 22% upside for 2027.
This capacity-driven revenue acceleration, combined with AI adoption ramping across enterprises, positions AWS for a multi-year period of stronger-than-expected growth.
Advertising Has Become Amazon’s Second Profit Engine
Although AWS dominates investor attention, Amazon’s advertising segment has quietly become one of the most potent drivers of growth and margins across the company. Advertising revenue rose 23.5% year over year in Q3 to $17.7 billion—beating expectations by nearly 300 basis points.
Amazon’s demand-side platform (DSP) enhancements, more precise targeting, and expansion of ad inventory across its online properties have meaningfully improved ad conversion rates. Meanwhile, Amazon’s retail footprint continues to generate unmatched first-party shopping intent data, strengthening the company’s competitive moat versus traditional digital ad platforms.
Management also expects significant future uplift from AI-driven shopping tools such as Rufus, its retail-focused generative AI assistant. Rufus is already expected to contribute roughly $10 billion in incremental annualized sales. As adoption broadens across Amazon’s ecosystem, this tool could meaningfully enhance retail conversion rates, increase ad relevancy, and drive high-margin revenue growth.
With the combination of AWS and advertising, Amazon now has two powerful, increasingly profitable engines driving earnings higher.
Additionally, retail operations showed renewed momentum in Q3. Online store revenue increased nearly 10% year over year, and physical stores saw mid-single-digit growth. Fulfillment efficiency improvements, supply chain automation, and AI-driven logistics continue to reduce per-unit cost to serve. Amazon’s push into AI-enabled personalization—across search, recommendations, customer service, and logistics—has materially improved productivity while enhancing customer experience. As these technologies scale, retail margins should continue to expand, providing a third leg of support for overall earnings growth.
AMZN’s Attractive Valuation By Historical Standards
The stock continues to trade below its historical valuation ranges. The stock’s P/E ratio of 32.82 is far below its five-year average of 58.17 and above the sector median of 15.97. On an EV/EBITDA basis, Amazon trades at 18.26—again meaningfully below its historical average of 23.87.
The traditional valuation models suggest the stock remains undervalued. Using twelve valuation methodologies—including EV/EBITDA, price-to-sales, and a ten-year discounted cash flow model—I calculate a fair value of approximately $240 per share. This implies about 5% upside from current levels.
Is AMZN a Buy, Sell, or Hold?
Analysts broadly agree with the bullish case. According to Wall Street analysts tracked by TipRanks, Amazon carries a Strong Buy consensus rating with 43 Buy recommendations, 1 Hold, and zero Sells. The average 12-month price target stands at $295.63, implying nearly 30% upside from the current share price.
Amazon’s Quiet Set-Up for a New Multi-Year Growth Cycle
Amazon’s modest share price performance in 2025 masks a far more compelling underlying story. AWS has meaningfully reaccelerated, the backlog is expanding at an impressive pace, and a massive multiyear capacity expansion provides clear visibility into continued high growth. Advertising continues its rapid ascent and is becoming a major margin engine.
With the stock still trading below historical valuation levels, I believe the market continues to underestimate the magnitude of Amazon’s earnings power as AWS and advertising scale further. For these reasons, I remain strongly bullish on Amazon’s long-term outlook and see the recent period of muted stock performance as an attractive entry point ahead of a new multi-year growth cycle.