One of the more surprising things to happen to Amazon (AMZN 0.29%) stock in recent years may be its valuation. In past years, its P/E ratio often stayed above 100, even as the stock continued to surge higher.
That has changed over the last couple of years. Since the middle of 2023, the earnings multiple has steadily fallen.
While the P/E ratio has risen from its 2025 low of 27, its current 35 earnings multiple looks like a bargain compared to past years and is not far above the S&P 500 average of 30. The question for investors is: Does that valuation boost the buy case for Amazon, or should investors stop accumulating shares?
Image source: Amazon.
How Amazon's growth has slowed
In a sense, the state of Amazon is a natural outgrowth of its success. Its market cap is now more than $2.4 trillion. That means Amazon is the fifth-largest company trading on U.S. exchanges today. Its size now makes higher percentage growth more difficult to achieve, though that higher market cap may have also contributed to its lower valuation.
AMZN PE Ratio data by YCharts
Indeed, the enterprise for which it is best known reflects that slowing. Its e-commerce business, which remains the largest enterprise as measured by revenue, grew revenue by 8% annually in the first half of 2025. Although many mature non-tech enterprises would like to see that level of increase, it is far below its growth rate in earlier years.
Additionally, the company's financials imply that more than 30 years after the company's founding, it is likely that the e-commerce part of its business still does not generate a profit.
While it reports net sales for each business separately, several other enterprises are incorporated into Amazon's e-commerce-oriented North America and international segments. These segments generated almost $16 billion in operating income in the year's first half. However, online stores are a low-margin business. Hence, enterprises with higher margins, such as advertising, subscriptions, and third-party seller services, are likely the income generators for that part of the company.
Amid these struggles, Amazon stock is only up slightly since the beginning of the year.
NASDAQ: AMZN
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Where Amazon continues to prosper
Nonetheless, Amazon has become one of the more effective companies at mitigating this size issue, mainly by fostering enterprises under its umbrella with faster growth rates.
As mentioned before, that includes the third-party seller services and subscriptions businesses, but the fastest-growing of these enterprises is digital advertising. The company utilizes the expanse of its sales sites to post ads. So successful is this business that it generated nearly $30 billion in revenue in the first two quarters of the year, a 20% yearly increase.
Still, its most successful enterprise has no direct ties to its e-commerce operations. Cloud computing giant Amazon Web Services (AWS) generated more than $60 billion in revenue during the first two quarters, just under 19% of Amazon's total. With that, it earned almost $22 billion in operating income, more than the other two segments combined.
Moreover, artificial intelligence (AI) continues to enhance its business all around. Thanks to its lead in cloud computing, Amazon plays a massive role in running AI workloads. Thus, its AWS business is poised to continue to grow rapidly.
Additionally, the company uses AI to optimize its e-commerce-related businesses. This can enhance sales on its site and for the third-party sellers it supports, as well as optimize the ad and subscription businesses. Hence, at every level, AI should continue to enhance this company's growth.
Is Amazon stock a buy?
Under current conditions, investors should consider capitalizing on this lower valuation to add shares of Amazon.
Admittedly, the size of this business may have slowed growth in some areas, and it may not command the overall growth rates or P/E ratios of past years.
However, Amazon continues to stoke growth through AWS and through businesses like advertising in its e-commerce segments. As AI enhances this business, company growth and a relatively reasonable valuation will probably restart the increases in Amazon stock, making it likely the valuation will not stay this low for long.
