Amazon frustrated investors last year.
There are obvious synergies between Amazon and AI and AWS is also a big beneficiary of AI spending. Despite that, shares were virtually flat in 2025.
That could be changing. Shares are up 3.49% today and more than 4% this year. That's bumped them to the highest since November 11 but it's been the speed of the move that matters as investors seem to be piling in.
The risk is that this is more smoke and mirrors than fundamentals. The rise in shares could be hedge fund rebalancing in tech or the Mag7.
Advertising revenue is forecast to hit $80-$85 billion in 2026. Crucially, this revenue carries 50%+ operating margins. As ad revenue grows faster than the core retail business (20% vs. 8%), it naturally drags the overall corporate margin higher.
After slowing in '24/'25, AWS revenue growth is projected to hit 30%+ in 2026. The massive infrastructure buildout (doubling power capacity) is finally meeting the backlog of AI workloads moving from "training" to "inference." As these high-compute workloads scale, operating leverage in the cloud segment returns.
The buzz word so far this year is 'physical AI' with the leaders of Nvidia and AMD touting it in early 2026. Who could benefit more than Amazon? If they can use robotics rather than people to fulfill orders, then the retail margins could explode. The company hopes to cut $0.30 off each package by 2027, which would be huge for the bottom line.
It's trading at 30x the 2026 consensus of $8.10 and 24.5x the 2027 consensus of $9.80. That compares to a five-year average of 55x and a 10-year average of 75x. Obviously, there has to be some slowdown when a company gets as big as Amazon but it's a ubiquitous company that's built an incredible shipping and logistics moat.
A re-rate to 35x takes it to $283/share.
The drag might be capex as the company spent $125B and plans to spend $130B this year. We have seen this before where skeptics lean in during these periods followed by huge returns on investments like Prime and AWS.
Another smart move the company made was a series of forays into AI with a 2023 purchase of up to $4 billion in Anthropic followed by a second investment in November 2024. It's not clear how much of the company that netted by Anthropic has been executing to rave reviews, particularly with coders. The investment is probably a big winner already (they might own 15-20% of it) but it also shows that Amazon is skating to where the puck will be in AI.
Overall, AWS revenue growth has re-accelerated to 30%+, advertising is now an $80B+ high-margin juggernaut, and retail margins are stabilizing with big upside from 'physical AI'.
