Amazon (AMZN +1.31%) is one of the most dominant retail brands, but that's not what makes it a great stock.
Investors might think Amazon's lofty market cap of $2.5 trillion leaves little room for upside. But what's more important to the company's value is the growth and profitability of its non-retail services, particularly Amazon Web Services (AWS) -- its most profitable business that is also tapping into the growth in artificial intelligence (AI).
If AWS continues to show strong growth, the stock could be a very rewarding investment in 2026 and beyond. Here are three reasons why.
Image source: Getty Images.
1. Cloud growth is accelerating
AWS is the leading cloud services provider for enterprises and generated $11.4 billion in operating profit in the third quarter -- comprising 65% of the company's total. It's for this reason that AWS' accelerating growth makes the stock a compelling buy for 2026.
On a currency-neutral basis, AWS posted a 20% year-over-year increase in revenue in Q3, up from 17% in previous quarters. This is despite AWS being supply constrained for compute capacity in its data centers and unable to meet all customer demand for cloud services.
The momentum in the cloud is a good reason to buy the stock, but AWS will have to execute in a crowded field. Competition from other leading cloud providers, such as Microsoft Azure and Alphabet's Google Cloud, is worth watching. These rival platforms are growing faster than AWS and taking market share.
Still, AWS's improving growth rate shows that a rising tide is lifting all boats in the cloud market. Amazon is investing to expand its data center capacity, which could drive even higher rates of growth for its cloud computing business in 2026.
NASDAQ: AMZN
Key Data Points
2. Amazon generates robust operating cash flow
Amazon is a big business with $691 billion in trailing-12-month revenue. It also converted this enormous revenue into a large and growing stream of operating cash flow, or cash from operations, totaling $130 billion during the past year. This is valuable financial firepower as Amazon expands its data center footprint.
Management is investing those cash flows in critical infrastructure to meet growing cloud demand. Specifically, Amazon is adding 3.8 gigawatts of data center capacity (measured by power usage) to satisfy customer needs.
As more businesses use AI software tools in the cloud, they require more compute power, including more servers and more electricity to operate large clusters of chips in their data centers. Amazon's ability to generate robust cash flows, largely thanks to AWS's high margins, and reinvest in expanding its infrastructure, makes it well positioned for growth in an AI-driven economy.
3. Attractive valuation
AWS's momentum, along with growing cash flows, makes the stock's valuation attractive. One of the best ways to gauge the stock's value is by comparing the stock price to cash from operations (CFO) per share, since the company's earnings can swing with investment cycles. During the past decade, Amazon's price-to-CFO multiple has ranged from about 16 at the low end to 47 at the high end. It is currently 19.2, which is also below the stock's 20-year average multiple of roughly 27.
Wall Street expects Amazon's free cash flow (cash from operations minus capital expenditures) to grow from $21 billion in 2025 to $141 billion by 2029. This estimate reflects management's effort to cut costs and improve margins in its retail business, which has helped boost Amazon's profitability during the past few years. AWS will also be a key driver, as more enterprises migrate their data from on-premise servers to the cloud -- a trend that is still in the early innings.
Put it all together, and Amazon's current valuation leaves room for attractive long-term returns.
