What’s In Store For Amazon Stock?

Amazon stock has had a bizarre 2025—up only 5% while the S&P 500 delivered 16% gains. This marks it as the worst-performing Magnificent Seven stock despite being a “top pick” for most Wall Street firms. The stock is trading around $231, down from its all-time high of $258 in November 2025.

But here’s the puzzle: AWS is accelerating, advertising is booming past $60 billion annualized, and Amazon’s investing $125 billion in AI infrastructure. Wall Street sees 30%+ upside for 2026. Is the market missing something, or is Amazon overinvesting while competitors catch up?

Revenue and Earnings Expectations for 2026:

• 2026 EPS: $7.86 (versus $7.06 for 2025 = 11% growth)
• 2026 Revenue: Approximately $790 billion (11% growth)
• AWS Growth: 30%+ revenue growth projected (up from 20% in Q3 2025)
• Current Trading Multiples: 29x forward P/E, 33x trailing P/E
• Analyst Consensus: Strong Buy from over 60 analysts covering the stock

Here’s the disconnect: EPS growth looks tepid at 11%, but that’s because Amazon’s plowing $125 billion into CapEx in 2025, with increases expected in 2026. Depreciation expenses are crushing near-term earnings. The bet is that AWS capacity additions generate $3 billion in revenue per gigawatt added, driving earnings acceleration in 2027-2028.

Average analyst price target: $297 (28% upside from current levels). Some targets reach $360 (55% upside).

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Image by patryklatko74 from Pixabay

Growth Drivers: What Could Propel 2026?

1. AWS: The AI Infrastructure Bet Paying Off

Can AWS sustain 30%+ growth in 2026? The capacity buildout suggests yes.

Current State:

• Q3 2025 revenue: $33 billion (20% year-over-year growth)
• Q3 operating income: $11.4 billion at 34.6% margins
• Annualized run rate: $132 billion
• Cloud backlog: $200 billion in performance obligations

The 2026 Catalyst: AWS is doubling power capacity from 2022 levels by 2027. The company added 3.8 gigawatts in the past year—more than any hyperscaler. Each gigawatt generates $3 billion in annual revenue, according to Oppenheimer. If AWS adds another 4-5 gigawatts in 2026, that’s $12-15 billion in incremental revenue potential.

Custom Silicon Edge:

• Trainium2: Multi-billion dollar business growing 150% sequentially. Nearly 500,000 Trainium2 chips are committed to a single AI partner (likely Anthropic or Meta).
• Trainium3: First 3nm AI chip delivering 4.4x higher performance and 40% lower energy consumption. Launching in 2026.

Why does this matter? AWS customers want cheaper AI inference costs. Amazon’s custom chips undercut Nvidia by 30-50% on price-performance. As AI workloads scale from experimentation to production in 2026, cost efficiency drives adoption.

The math: AWS did $132 billion annualized in Q3 2025. Growing 30% puts 2026 revenue at $172 billion—a $40 billion increase. At 34% margins, that’s $13.6 billion in added operating income. For context, Amazon’s entire Q3 2025 operating income was $17.4 billion (excluding special charges).

2. Advertising: The $60+ Billion Silent Giant

How did advertising become Amazon’s fastest-growing segment?

The Scale:

• Q3 2025 advertising revenue: $17.7 billion (24% year-over-year growth)
• Annualized run rate: $70+ billion (surpassing YouTube)
• 2026 projection: $80-85 billion

Amazon’s advertising goldmine operates on three fronts:

1. Retail Media: Sponsored product ads on Amazon.com have the highest conversion rates in digital advertising. Shoppers search with purchase intent—not browsing. Click-to-purchase rates exceed Facebook and Google Search.
2. Prime Video Ads: Amazon shifted Prime Video to an ad-supported tier in 2024. With 200+ million Prime members globally, that’s instant scale. Connected TV advertising is the fastest-growing ad format.
3. Amazon DSP (Demand-Side Platform): This is the stealth weapon. Amazon is selling targeted ads across Netflix, Roku, and third-party publishers using Amazon’s first-party shopping data. Advertisers pay premiums for Amazon’s targeting capabilities off-platform.

The 2026 opportunity: If advertising grows 20% from a $70 billion base, that’s $14 billion in incremental high-margin revenue. Advertising operates at 50%+ operating margins versus 5-7% for retail. Every dollar of ad revenue is worth 7-10x a retail dollar in profitability.

3. E-Commerce: Defending the Moat

Can Amazon maintain dominance amid Walmart, Temu, and Shein attacks?

The Reality: U.S. e-commerce growth moderated in 2025. Competition intensified. But Amazon’s not losing—it’s repositioning.

1. Grocery Expansion: Amazon is doubling down on grocery with private label brands. Grocery is a $1+ trillion U.S. market with low online penetration. Amazon Fresh and Whole Foods integration is improving.
2. Amazon Haul: New platform targeting Temu/Shein shoppers with ultra-low-cost merchandise. Protects the low end while preserving Prime’s premium experience.
3. Amazon Business (B2B): Multi-billion dollar run rate serving small businesses and enterprises. B2B e-commerce is less competitive and has a higher margin than consumer retail.
4. Third-Party Seller Services: 62% of units sold come from third-party sellers. Amazon collects fees without inventory risk. Q3 seller services revenue: $42.5 billion (high-margin).

The 2026 thesis: North America and International segments don’t need hypergrowth. Growing 7-9% while protecting margins, funds AWS, and advertising investments. If retail operating margins improve from 5% to 6-7%, that’s $3-5 billion in added profitability on a $500 billion retail base.

4. Emerging Bets: Zoox, Kuiper, Healthcare

Are these distractions or future growth engines?

• Zoox Robotaxi: Amazon’s autonomous vehicle subsidiary. Competing with Waymo and Tesla. Limited commercial deployments in Las Vegas and San Francisco. Unlike Waymo, Zoox is building purpose-designed vehicles. The 2026 expansion could include more cities, but this remains years from meaningful revenue.
• Project Kuiper: Satellite internet constellation competing with Starlink. The first satellites were launched in 2024. Commercial service targeting 2026. Addresses rural broadband gaps. Total addressable market: $500+ billion globally. But CapEx intensive and competitive.
• Amazon Pharmacy: Online prescription fulfillment. Acquired PillPack in 2018. Expanding Amazon Pharmacy nationwide. Healthcare is a $4 trillion U.S. market, but heavily regulated and complex.

The 2026 Impact: These ventures contribute minimal revenue in 2026 but validate Amazon’s platform optionality. If any hits inflection (like AWS did in 2015), it’s a multi-billion dollar upside driver by 2028-2030.

5. Capital Expenditure: The $125+ Billion Question

Is Amazon overinvesting or pre-positioning for dominance?

The Spend:

• 2025 CapEx: $125 billion (up from $100 billion forecast)
• 2026 CapEx: Expected to increase further (potentially $130-140 billion)
• Primary use: Data centers, AI chips, and networking for AWS

The Risk: If AI demand disappoints, Amazon is sitting on underutilized, expensive infrastructure. Depreciation expenses grow, crushing margins. Competitors like Microsoft ($140 billion 2025 CapEx) and Google ($90+ billion) are also investing heavily.

What if supply exceeds demand?

• The Opportunity: AWS backlog is $200 billion. Demand is visible. Enterprises are migrating workloads to the cloud + adding AI applications. If utilization ramps smoothly, AWS experiences both 30%+ growth and margin expansion as fixed costs spread over higher revenue.
• Oppenheimer’s thesis: Each gigawatt added generates $3 billion in annual revenue. Doubling capacity by 2027 means adding 8-10 gigawatts total. That’s $24-30 billion in incremental high-margin revenue by 2027-2028. The 2026 CapEx pays for 2027-2028 earnings growth.

Risks: What Could Go Wrong in 2026?

1. AWS Market Share Erosion to Microsoft and Google:

The Threat: AWS holds 30% cloud market share, but Microsoft Azure and Google Cloud are growing faster (30-50% vs. AWS’s 20%). If that trend continues, AWS’s dominance may erode by 2027. Recent data shows Microsoft’s cloud growing 30%+, Google Cloud surging 35%, while AWS grew 20% in Q3 2025. The gap is widening. If AWS decelerates to 15% growth while competitors maintain 30%+, the market re-rates AWS as a mature business.

Why It Matters: AWS generates 50-70% of Amazon’s operating profit despite being only 17% of revenue. Losing AWS leadership destroys the bull thesis.

2. E-Commerce Margin Compression

The Pressure: Walmart, Temu, and Shein are intensifying competition. Walmart’s growing e-commerce is faster than Amazon’s. Temu and Shein are capturing Gen Z shoppers with ultra-low prices. If Amazon sacrifices margins to defend market share, retail profitability collapses. Retail already operates at 5-7% margins. Dropping to 3-4% wipes out billions in operating income.

3. CapEx Overspend with Insufficient Returns

The Risk: $125-140 billion annual CapEx is manageable only if AWS growth exceeds 25% with stable margins. What if:

• AI demand slows (delayed AI deployments due to unclear ROI)
• Pricing pressure from competition drives AWS margins below 30%
• Utilization disappoints due to overcapacity across all hyperscalers

Free cash flow in Q3 2025 dropped to $3.1 billion (down 61% year-over-year) due to CapEx surge. If this continues without revenue acceleration, Amazon’s cash generation stalls. The stock gets re-rated as a low-growth, capital-intensive business.

4. Regulatory and Antitrust Headwinds

The Risks:

• FTC lawsuit targeting Amazon’s marketplace practices (forcing sellers to use Fulfillment by Amazon).
• Potential breakup scenarios (spinning off AWS or advertising business).
• International regulatory challenges in the EU (Digital Markets Act scrutiny)

A forced AWS spinoff could unlock value but also introduce execution risk and eliminate cross-subsidization of retail and AWS investments.

5. Valuation Already Pricing in Perfection?

The Math: At 29x forward P/E and $231 per share, is there room for multiple expansion? Amazon’s trading is in line with Microsoft (30x forward P/E), Apple (30x), and Google (28x). Only Meta trades cheaper at 25x. If 2026 EPS growth disappoints at 5-7% instead of the expected 11%, the stock could re-rate to 28-29x, pushing it to $220-225 (5% downside).

After underperforming in 2025, investor patience is thin. If Q1 2026 results show AWS growth below 25% or advertising growth decelerating, the stock tests $200-210.

Valuation: Is AMZN Fairly Priced for 2026?

Current state: $231 per share, 29x forward P/E, $2.5 trillion market cap. Look at our Amazon Valuation Ratios dashboard for more details.

Bull Case Scenario:

• 2026 EPS: $8.00-8.50 (beats consensus due to AWS acceleration)
• Stock re-rates to 40-45x P/E (growth premium restored)
• Target price: $320-382 (38-65% upside)
• AWS grows 35%+, advertising hits $85 billion, CapEx drives 2027 earnings surge

Base Case Scenario:

• 2026 EPS: $7.80-7.90 (roughly consensus)
• P/E stays around 30-33x
• Target price: $234-260 (1-12% upside)
• AWS grows 25-30%, advertising steady at 20% growth, retail margins stable

Bear Case Scenario:

• 2026 EPS: $7.20-7.50 (misses due to CapEx drag or AWS deceleration)
• P/E contracts to 26-28x on disappointment
• Target price: $187-210 (9-19% downside)
• AWS growth slows to 20%, competition intensifies, CapEx returns disappoint

Comparison to Peers:

Microsoft: 30x forward P/E
Google: 28x forward P/E
Meta: 25x forward P/E
Apple: 30x forward P/E

Amazon at 29x isn’t expensive relative to peers given AWS growth potential, but there’s limited multiple expansion room unless growth re-accelerates convincingly.

The Bottom Line: 2026 Setup

If you’re investing in Amazon for 2026, you’re betting that:

• AWS capacity buildout translates to 30%+ revenue growth by mid-2026
• Advertising hits $80-85 billion with minimal margin dilution
• Retail holds market share while improving profitability to 6-7% margins
• CapEx spending ($125-140 billion) generates strong returns by 2027-2028
• Competition from Microsoft and Google doesn’t accelerate further

The risk-reward looks favorable at $231. At 29x forward earnings with multiple 20%+ growth drivers (AWS, advertising, custom silicon), Amazon offers 20-30% upside if execution delivers. The downside is limited to 10-15% given AWS’s $132 billion run rate, advertising’s $70 billion scale, and e-commerce dominance.

For 2026, this isn’t a high-multiple growth story—it’s a “prove the CapEx pays off” story. Amazon’s invested massively in 2024-2025. The 2026 question is simple: does AWS growth accelerate from 20% to 30%+, validating the spending? If yes, the stock hits $280-320. If AWS stays at 20-25% growth, the stock grinds to $250-260. If AWS decelerates below 20%, the stock tests $200.

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