Key Points
Amazon’s rising cloud and AI expenses are weighing down its stock.
But it will keep growing for the foreseeable future.
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Amazon's (NASDAQ: AMZN) stock has declined about 10% year to date, while the S&P 500 has remained nearly flat. Let's see why the e-commerce and cloud infrastructure leader underperformed the market, and whether it's a stock to buy, sell, or hold for 2026.
Why didn't Amazon impress investors?
In 2025, Amazon's net sales rose 12%, up from 11% in 2024. Its operating margin also expanded by 10 basis points to 10.9%, and its EPS grew by 30%.
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Image source: Amazon.
Its e-commerce business, which accounts for most of its revenue, continued to grow as inflation cooled off. It also upgraded its logistics networks to accelerate deliveries, attracted more third-party merchants, and expanded overseas. Its cloud business, which generates most of its profits, grew much faster than its e-commerce business. That growth was largely driven by the expanding AI market, which drove more companies to expand their cloud infrastructure.
The robust growth of Amazon's cloud infrastructure platform, Amazon Web Services (AWS), enables the company to expand its e-commerce business with lower-margin strategies -- including free shipping options, discounts, and other perks for its Prime members. Its smaller advertising business, which sells promoted listings and integrated ads across its platforms, could also expand and evolve into a secondary profit engine over the next few years.
From 2025 to 2028, analysts expect Amazon's revenue and EPS to grow at CAGRs of 12% and 18%, respectively. Those growth rates are steady, but its stock doesn't seem particularly cheap at 27 times this year's earnings. That higher valuation -- along with its plans to invest up to $200 billion in its cloud and AI infrastructure this year -- is likely weighing down its stock.
Where is Amazon's stock headed?
If Amazon matches analysts' expectations through 2028, but trades at a slightly lower forward price-to-earnings ratio of 25 by the final year, its stock could rise 40% over the next two years. That could keep Amazon ahead of the S&P 500, which has delivered an average annual return of 10% since its inception. Still, its stock could remain under pressure this year as investors focus more on near-term spending, fluctuating tariffs, and recent geopolitical conflicts.
But as the company that serves more than 240 million Prime members worldwide and controls over 30% of the global cloud infrastructure market, Amazon remains one of the simplest ways to profit from the secular growth of the e-commerce, cloud, and AI markets. Therefore, I believe it's smarter to buy and hold Amazon in this turbulent market rather than sell it.
Should you buy stock in Amazon right now?
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Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
