Just a few years ago, Amazon (AMZN 2.85%) hit a rough patch. The e-commerce giant struggled with rising inflation and as a result, in 2022 reported its first net loss in about a decade. But Amazon didn't remain in the doldrums for very long. The company took action and revamped its cost structure -- and returned to earnings growth the following year.
Since then, Amazon, thanks to both its e-commerce and cloud computing businesses, has continued to grow. And its presence in the high-potential area of artificial intelligence (AI) has offered an additional boost. Over the past three years, Amazon's stock, climbing 175%, has reflected this positive momentum.
Now, is this top consumer and tech stock a buy, sell, or hold in 2025? Let's find out.
Image source: Amazon.
Amazon's cost structure
Before answering that question, though, let's consider Amazon's development in recent years. As mentioned, the company faced headwinds a few years ago, but its actions on its cost structure spurred recovery and today continue to help the company excel. For example, in the U.S. Amazon shifted to a regional model from a national fulfillment model -- moving inventory closer to customers -- and this has lowered the company's cost to serve.
In more recent times, Amazon has invested heavily in AI -- for its own use and to sell to its customers through Amazon Web Services (AWS), its cloud unit. And this investment has made a big difference for the company as we can see through recent earnings numbers. In e-commerce, Amazon's AI shopping assistant, Rufus, is on the way to generating more than $10 billion in additional annualized sales for the company. Amazon says that customers using Rufus are 60% more likely to follow through on their shopping and make a purchase.
Amazon also has launched more than 1 million robots across its fulfillment network, a move that's boosting efficiency. So, AI is helping Amazon improve its services, which supports sales growth, and at the same time streamlining processes to reduce costs.
NASDAQ: AMZN
Key Data Points
AI as a game-changer
But where AI truly may be a game-changer for Amazon is in the cloud business. AI has supercharged AWS' growth as customers rush to the service to run AI workloads. In the recent quarter, AWS revenue rose 20% for the fastest growth rate in 11 quarters -- and AWS reached a $132 billion annualized revenue run rate. Backlog rose to $200 billion, and this doesn't include all deals signed in October -- on top of this, October deals surpassed the deal volume of the entire third quarter.
AWS should continue to win as it offers AI customers a wide range of options -- from its own Trainium chips, which have grown into a multibillion-dollar business, to chips from market leaders such as Nvidia and Advanced Micro Devices.
AWS is a key part of the Amazon earnings picture since this unit drives the company's profitability. In the recent quarter, AWS operating income represented more than 64% of total operating income. But both e-commerce and AWS have been firing on all cylinders, helping the company report a double-digit increase in net sales in the quarter to more than $180 billion.
Should you buy Amazon stock?
Now, let's return to our question: Is Amazon a buy, sell, or hold in 2025? Amazon may face certain headwinds, such as import tariffs that could impact its e-commerce business -- though so far this hasn't been a major problem. And AWS competes with several other cloud providers for AI customers, from similar cloud businesses such as Microsoft's Azure to clouds that specialize in AI workloads, like CoreWeave. But so far, there's been plenty of business for all players, and AI demand doesn't seem ready to let up at any point soon.
Meanwhile, trading for 35 times forward earnings estimates, down from more than 50 times a couple of years ago, Amazon shares are reasonably priced -- so this valuation shouldn't push away investors. All of this makes me optimistic about Amazon in both the e-commerce and cloud space, and that's why this stock is a buy and hold in 2025 and beyond.
