After being a market laggard much of the past year, Amazon's (AMZN +1.21%) stock has started to get its mojo back, helped by reporting strong third-quarter results and announcing a deal with OpenAI. However, with what the company has been building behind the scenes, this could just be the start of its breakout.
A cloud computing leader
Amazon pioneered cloud computing, and today it remains the market share leader. With its large size, though, Amazon Web Services (AWS) has been growing more slowly than its peers. However, in Q3, AWS revenue growth accelerated to 20%.
Meanwhile, growth looks like it should continue to pick up. Amazon boosted its capital expenditure (capex) budget, taking it from $118 billion to $125 billion, while saying it will likely increase next year as well. At the same time, Project Rainier, which is one of the world's largest AI clusters built exclusively for Anthropic, is just starting to ramp up, using AWS' custom Trainium 2 AI chips.
In addition, Amazon just inked a seven-year, $38 billion deal to provide OpenAI with Amazon EC2 UltraServers that use Nvidia graphics processing units. OpenAI has been making a lot of recent partnerships, and cited AWS' proven ability to securely run large-scale AI infrastructure as the main reason behind the deal.
With both OpenAI and Anthropic now as big customers, AWS should see solid cloud computing growth over the next several years. The company is also looking to move into newer areas such as agentic AI with Strands and AgentCore, which lets customers create AI agents and deploy them in a secure, serverless environment. Customers have already downloaded the AgentCore developer's kit 1 million times.
Image source: Getty Images.
Beyond the cloud
In addition to its fast-growing cloud computing business, Amazon is also seeing tremendous operating leverage in its e-commerce operations. The center of this comes from its push in robotics and AI.
The company has over 1 million robots in it fulfillment centers, all of which are coordinated by its Deepfleet AI model to run efficiently. Many of these robots can do more than just lift boxes, with AI providing them the ability to do such things as recognize damaged items before they are sent out, saving money on costly returns. Some can even fix themselves.
In addition to its fleet of robots, Amazon is also using AI to speed up delivery times and save costs. On this front, it's using AI to not only optimize delivery routes, but also to decide which warehouses around the country are the best places to store items. It's also using AI to help drivers find difficult-to-locate drop-off spots in places like large apartment complexes or office parks.
Amazon is also using AI to help drive growth in its ad business, which carries higher gross margins. The company has actually grown to become one of the largest digital ad platforms on the planet, and it's using AI to help improve the creative part of campaigns as well as targeting and bidding. It has an AI-powered DSP (demand side platform) for video advertising, both on and off Amazon. Last quarter, Amazon's ad business grew an impressive 24% to $17.7 billion.
NASDAQ: AMZN
Key Data Points
Combined, all of this is helping Amazon see its e-commerce profits grow much more quickly than its revenue. Last quarter, its North American revenue climbed 11% to $106.3 billion, while its adjusted operating income soared 28% to $7.3 billion.
Time to buy the stock
While its stock has rebounded recently, Amazon still trades at a reasonable valuation, with a forward price-to-earnings ratio of under 33 times 2026 analyst estimates. That's actually below traditional retailers like Costco Wholesale and Walmart.
With the company seeing strong operating leverage in its e-commerce business and growth starting to accelerate at AWS, now still looks like a good time to buy the stock for the long term.
