Investors are currently worried about Amazon's (AMZN 1.19%) position in the artificial intelligence (AI) revolution. Even though the company benefits from increased cloud spending on AI computing resources, it has failed to deliver cutting-edge AI models and is growing more slowly than competitors in winning deals, putting pressure on its stock price.
However, as readers will know, Amazon is not just a cloud computing business. It has a vast retail empire worldwide that generated more than $500 billion in revenue last year and is seeing double-digit growth. Here's why investors should forget about the AI boom, and why Amazon's e-commerce profit potential makes it a once-in-a-decade bargain right now.
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Underappreciated profit potential in e-commerce
While the focus on AI is on how fast Amazon can grow its revenue, the focus in e-commerce is on how high its profit margin can get. Last year, Amazon's North American retail division posted a segment profit margin of 6.9%, one of its highest levels ever. At the same time, revenue still grew 10% year over year in 2025.
Growth in higher-margin segments, such as advertising, is helping Amazon expand its profit pool. Amazon is still investing in many research projects and moonshots, such as Alexa devices, a satellite internet constellation, and new in-person shopping experiences. These are hurting Amazon's profit margins in the short run but could create value over the long run. If they fail, Amazon will ideally cut the divisions to save costs for shareholders.
NASDAQ: AMZN
Key Data Points
This means Amazon's North American e-commerce division could achieve much higher profit margins in the years ahead. Reaching 10% is an easy feat from here, and 15% would not be out of the question over the long term. Plus, its international markets are doing $162 billion in revenue with very slim margins today. Amazon's overall earnings should expand steadily over the decade ahead if it can stay disciplined on costs.
Amazon stock is as cheap as it's ever been
Even though Amazon's profit margins are lower than its long-term potential in retail, the stock trades at one of its lowest price-to-earnings ratios (P/E) in history -- 28.5 as of this writing.
This understates how cheap Amazon stock is for investors with an eye toward the future. Retail alone could grow into a $750 billion revenue business within a few years. If North American and international retail can have a combined profit margin of 10%, that is $75 billion in earnings from these divisions alone. Given AWS' rapid growth and Amazon's P/E ratio, it should come down quite quickly in the years ahead.
Ignore the AI noise. Amazon's stock is cheap because of the profit potential of its e-commerce business alone.
