Amazon (AMZN +1.98%) was one of the more disappointing megacap artificial intelligence (AI) stocks last year, managing just a 5% gain. However, 2026 should be a much better year for the stock.
Let's look at where it could finish 2026.
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A cloud computing leader
Amazon's most important segment at this time is its cloud computing unit, Amazon Web Services (AWS). Amazon pioneered the infrastructure-as-a service model, and it remains the largest cloud computing company in the world today. AWS is also the company's most profitable business, and its fastest-growing segment.
However, AWS's growth has trailed that of the other two big cloud providers, Microsoft's Azure and Alphabet's Google Cloud, which saw revenue growth of 40% and 34% last quarter, respectively. By comparison, AWS grew its revenue by 20% in Q3, but that was an acceleration from 17.5% revenue growth it posted in Q2 and the 17% growth it saw in Q1.
AWS's revenue growth should continue to accelerate entering the new year. The company was still ramping up a huge data center project that it had constructed exclusively for Anthropic, using its custom Trainium chips. Meanwhile, it has noted that AWS has been capacity-constrained and that it is boosting its capital expenditures (capex) to help capture the demand it is seeing. It also recently announced a seven-year, $38 billion deal with OpenAI to supply computing power.
NASDAQ: AMZN
Key Data Points
While AWS will likely not catch up to the revenue growth of its peers, given its larger size, revenue growth accelerating above 20% should begin to excite investors more about its cloud computing prospects. Its custom chips can be a cost advantage, and it has a solid AI software stack, with solutions like Bedrock and SageMaker to help customers develop and deploy AI models. It also sees a big opportunity with its agentic AI solutions.
The king of e-commerce
In addition to being the world's largest cloud provider, Amazon is also the world's biggest e-commerce retailer. This business is actually much bigger than AWS in terms of sales, but its margins are much slimmer. However, Amazon has been working to increase its retail operating margins and has been seeing strong operating leverage. This could be seen in its Q3 results, as its North American segment sales rose 11% to $106.3 billion, while its adjusted operating income surged 28% to $7.3 billion.
Amazon has been increasing its operating margins in a few ways. One way is through its digital advertising business, which carries much higher gross margins than much of the rest of its e-commerce operations. The company is using AI to help customers create better ad campaigns and listings, as well as to better target users. Last quarter, its sponsored ad business grew at a brisk 24% to $17.7 billion, so it's not exactly off a small base.
The biggest driver of Amazon's e-commerce operating leverage, though, is its work with AI and robotics behind the scenes. Amazon is actually the world's largest manufacturer and operator of robotics in the world. However, the company often doesn't get credit for this because it uses these robots in its own fulfillment facilities and doesn't sell them to generate revenue.
The company has more than 1 million robots in its fulfillment facilities, all coordinated by its DeepFleet AI model. In addition, the company is using AI to optimize delivery routes and where to store items, to both get packages more quickly to customers and to cut costs.
Where could the stock finish in 2026?
One of the most notable things about Amazon's stock is that it is attractively priced both historically and compared to its leading retail peers Walmart and Costco. Amazon currently carries a forward price-to-earnings (P/E) ratio of 25 times, versus around 40 times for both Walmart and Costco. Amazon is also growing its retail sales at a faster pace than these two competitors, on top of its AWS growth.
If we were just to apply the same 40 times multiple on Amazon's stock by year-end, it would be about a $315 stock. That's about 30% upside from current levels and makes it a great stock to own in 2026.
