Amazon (NASDAQ:AMZN) is an e-commerce tour de force. Founder Jeff Bezos has redefined the shopping experience, pushing many brick-and-mortar retailers into bankruptcy in the process. In fact, mere speculation about Amazon moving into a new industry is enough to cause incumbents and their investors to panic, the latter selling off shares.

However, there's no compelling case for fundamental investors to buy stock in Amazon because of its ubiquitous retail operations. Instead, they should focus on the company's cloud operations, Amazon Web Services, as a reason to own shares.

Cloud-shaped nightlight with a design suggesting a computer network

Image source: Getty Images.

Earnings powered by Amazon Web Services

In the long run, investors are driven by revenue and earnings growth. And Amazon Web Services is the key reason Amazon has transitioned from a mispriced curiosity, in the eyes of value-oriented investors, to a company that even Warren Buffett -- who passed up a chance to invest himself -- admitted was one of his biggest investing regrets.

While shares of the company are still expensive via traditional metrics, Amazon has shown it can grow into its valuation by posting 121% annualized growth in earnings per share in the last two years. Three years ago, the company reported a bottom-line loss. A quick look at Amazon's divisional revenue and operating income figures shows why the company is now more profitable:

Fiscal 2017 North American Retailing International Retailing AWS Total
Revenue $106.1 billion $54.3 billion $17.5 billion $177.9 billion
Operating income $2.8 billion ($3.1 billion) $4.3 billion $4.0 billion
Operating margin 2.6% (5.7%) 24.6% 2.2%

Data source: Amazon's 10-K filing.

Even better for long-term investors: Amazon Web Services continues to grow at a faster clip than the retail business. Last year the company reported full-year revenue growth of 31%, from $136 billion to $178 billion, but Amazon Web Services' 43% growth rate led all divisions.

AWS is now on pace for a run rate of $21.7 billion as of the first quarter. This is an obvious benefit, because from a profit perspective, the fact that AWS has an operating margin nearly 10 times what North American retail brings in essentially makes every dollar of revenue AWS brings in worth 10 times as much.

Retailing is a great business

That's not to say the retail division isn't a strong business. In fact, Amazon has a large runway for growth both in the United States and abroad. In the former, e-commerce is approximately 10% of total retail sales and climbing fast. As the United States' largest provider, Amazon is well-situated to benefit simply from the continued shift in consumer behavior.

Although international retailing is a loss-making endeavor at this point, it's likely Bezos is investing for the long term, in a similar manner as he did domestically. Eventually the division will cease to be a drag on operating profit.

However, in both North American and international retailing, it's likely Amazon will continue to offer razor-thin margins that enable it to offer the lowest prices possible. As it has for decades, Amazon will continue to focus on user and volume growth. It will also face more competition from brick-and-mortar retailers, like Walmart, that are finally grasping how important the digital channel will become.

Two great businesses -- one is just better for investors

Amazon is firing on all cylinders, but it's difficult to justify its valuation of $835 billion because of its lower-margin e-commerce divisions, even with a significant runway for growth. In the immediate future, Amazon's high-margin and high-growth cloud services division is what will power the stock higher.

Still, it's rare to have a company with two businesses that are dominating their industries, and have the potential to continue to do so for decades. Look for Amazon to continue to reward investors for years to come.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jamal Carnette, CFA owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.