Amazon (AMZN 1.47%) has driven massive returns for investors over the years. Its efforts to pioneer e-commerce and cloud computing have made it one of the most essential companies in both retail and tech.
Amid its gains, it may surprise investors that the stock's performance has been flat over the last year. The company has also reached a market cap of $2.4 trillion, so the fast growth does not come as easily as it did in the past. Does that mean that Amazon is going to struggle over the next year, or is this likely a temporary pause as its resumes its growth?
Image source: Amazon.
Amazon's surprising struggles
Amazon, like other retailers, deals with numerous competitive threats in retail. Although operating in a competitive environment is nothing new, Amazon seems to be facing a perfect storm of challenges with a consumer base that has become tapped out at the same time the e-commerce market is maturing and becoming increasingly competitive.
Worse, consumer challenges could affect Amazon's other e-commerce-related businesses. The company's massive base of third-party merchants could struggle with sales, while the growing popularity of artificial intelligence (AI) queries could lead more consumers to bypass its lucrative advertising platform.
On the tech side of the business, hyperscalers like Amazon are spending tens of billions of dollars this year alone to stay competitive. Amazon is no exception, and over the trailing 12 months, it spent more than $120 billion on capital expenditures (capex). This is far above the $70 billion spent in the previous 12-month period, a level that could spook investors despite Amazon's tremendous resources.
Reasons for optimism
However, even with concerns about Amazon's business and the overall economy, the numbers suggest Amazon is handling such concerns well.
Over the last year, revenue from online sales grew by 10%. Although this is a low-margin and possibly a money-losing business, it bolsters other enterprises that are not struggling as much as the economic data might suggest.
Revenue from third-party seller services is up 12% yearly, suggesting that Amazon's sellers continue to sell successfully on the platform. Additionally, digital advertising has risen 24% over the same period, implying that AI queries have not affected its business as much as some might fear.
Furthermore, even though the $120 billion spent on capex is a staggering sum, Amazon can likely afford it. As of the end of the third quarter of 2025, it held $94 billion in liquidity.
It also generated $15 billion in free cash flow over the trailing 12 months. That is down from $48 billion in the same year-ago period. Still, investors should remember that free cash flow subtracts capex spending, so to have positive free cash flow amid that burden speaks to the resilience of Amazon's operations.
Finally, even with the stock's struggles, Amazon stock now stands out for what is arguably a low valuation. Amazon has routinely traded above 50 times earnings over the last few years. Nonetheless, profits have risen even as the stock remained flat.
NASDAQ: AMZN
Key Data Points
Consequently, its P/E ratio has fallen to just 32, a level closely approximating the S&P 500 average earnings multiple of 31. Assuming Amazon's sales growth continues, such a valuation could spark a rally that sends Amazon stock higher over the next year.
Amazon in one year
Given the current state of Amazon, the stock is likely to return to growth over the next year.
Investors are probably right to have concerns about its large, maturing business and how struggles in the economy could affect Amazon.
Fortunately, the revenue numbers show that its retail-related businesses, including advertising, remain in growth mode. Moreover, Amazon can probably afford the heavy capex spending needed to stay competitive in AI, and these efforts should make it a strong cloud and AI competitor in the future.
Finally, the stock's average valuation positions it to resume growth with the right challenges. Hence, as consumers see Amazon's resilience in the face of economic challenges and heavy AI spending, investors are likely to bid the stock higher over the next 12 months.
