Amazon (AMZN 1.58%) is a legitimate powerhouse in two completely different fields. It has the biggest share of the e-commerce market in the U.S., with a market share of more than 37%. It's also the world's biggest cloud computing provider, with Amazon Web Services (AWS) having a 29% market share.
The two branches helped propel Amazon to global dominance -- it's a member of the Magnificent Seven grouping of stocks, which represent the seven best-performing publicly traded tech companies in the world. The Magnificent Seven make up 34% of the S&P 500, so their performance has a significant effect on the overall market.
This is the second installment of a seven-article series ranking, in reverse order, the best Magnificent Seven stocks to buy for 2026. Apple took the No. 7 spot on the list. Amazon is a great company, but it has some significant issues that keep it from being rated higher than others on this list. Here's why.
Image source: Amazon.
About Amazon's e-commerce network
Amazon traces its roots back more than three decades. It got its start as an online bookseller and expanded to include music and DVD sales, home improvement products, software, and video games.
A major shift in strategy occurred in 2000, when Amazon launched Amazon Marketplace and began allowing third-party, independent sellers to offer goods on its e-commerce network. That helped Amazon expand its reach tremendously. The company says that independent sellers have been responsible for more than $2.5 trillion in sales, and currently make up 60% of sales on Amazon.com.
Revenue in the third quarter was $180.17 billion, with $147.16 billion of that coming directly from retail sales. But there's also a huge issue with the e-commerce business -- it's incredibly expensive.
|
Region |
Q3 2025 Net Sales |
Q3 2025 Operating Expenses |
Profit Margin |
|---|---|---|---|
|
North America |
$106.27 billion |
$101.48 billion |
4.5% |
|
International |
$40.90 billion |
$39.70 billion |
2.9% |
|
Combined |
$147.16 billion |
$141.17 billion |
4.1% |
Data source: Amazon.
It's challenging to run a successful business when the primary revenue source yields such a low profit margin. But trade tensions -- such as President Donald Trump's tariff policies -- are increasing costs for sellers and forcing Amazon to choose between changing suppliers to a country with lower import fees, increasing prices, or lowering its profits. Amazon briefly considered adding a notation to prices on Amazon.com to show how much tariffs cost for each item, but backed off from that idea.
Amazon is taking steps to reduce costs wherever possible. CEO Andy Jassy says that the company uses automation in its fulfillment network, deploying more than 1 million robots to increase productivity and speed. But it's undoubtedly a challenging business, and part of the reason why Amazon's stock rose less than 5% so far in 2025.
NASDAQ: AMZN
Key Data Points
About Amazon's cloud services
Unquestionably, Amazon's most interesting division right now is AWS. That's why the company's promoting it so heavily in its corporate communications and earnings calls. While Amazon.com has just over a 4% profit margin, Amazon Web Services contributed $33 billion in revenue in Q3 and $11.43 billion in operating income, for a profit margin of 34.6%.
Put another way, Amazon had net income of $21.19 billion for Q3, and 54% of that came from AWS. "AWS is gaining momentum," Jassy said. "Customers want to be running their core and AI workloads in AWS given its stronger functionality, security and operational performance and the scale I see in front of us gives me significant confidence in what lies ahead."
Amazon reported that its AWS backlog grew to $200 billion by the end of Q3, signaling increased demand for cloud platform. In addition, it's unveiling an upgraded AI chip, called Trainium3, that is designed to replace some of the company's reliance on Nvidia infrastructure. The Trainium3 chips are designed to handle AI tasks at lower prices, and Amazon is looking to have AI developers use its chips rather than Nvidia's Blackwell architecture.
Amazon is a buy here, but it's still No. 6
Amazon is currently trading at a price-to-earnings ratio of 32, which is hefty for any stock. But it's also much lower than where Amazon traded earlier in 2025, when the P/E was north of 40.
The company is making significant efforts to expand its AWS network, which should continue to be an expanding profit center for Amazon stock. It's monetizing AI in its Amazon.com advertising network, and its Trainium chips are already considered a multi-billion-dollar opportunity.
The only thing that gives me pause about Amazon is the expenses required to run the e-commerce operation. But Amazon is still a good stock to buy, deserving of its inclusion in the Magnificent Seven and its No. 6 ranking.
