Why Amazon (AMZN) Is a High-Conviction Buy for 2026
Despite being the only “Magnificent Seven” stock to underperform in 2025, Amazon’s fundamentals have significantly improved. This disconnect—weak price, strong business momentum—creates a compelling opportunity before capital rotations in 2026.
Amazon’s upside is supported by three major drivers:
1. AWS Becomes an AI Growth Engine Again
- Q3 AWS revenue: $33B, +20% YoY, fastest growth since 2022
- AI workloads growing 3× faster than traditional cloud workloads
- AWS backlog hits $200B, signaling multi-year revenue visibility
- Large enterprise bookings surged in October, exceeding all of Q3
AWS is finally re-accelerating—and Wall Street hasn’t fully priced it in.
2. Amazon’s Full-Stack AI Strategy
- Creates a Durable Competitive Moat
Amazon is now one of the few companies with complete AI vertical integration:
- Trainium/Inferentia AI chips
- Bedrock foundation-model platform
- Nova AI models
- Custom high-performance cloud infrastructure
Trainium chip revenue grew 150% QoQ, becoming a multi-billion-dollar business.
Trainium3 launches with 2× performance and 50% energy efficiency gains, which strengthens AWS’s cost advantage vs. NVIDIA-based platforms.
Major proof point:
✔ OpenAI signed a $3.8B multi-year contract for AWS compute capacity
This validates AWS as one of the world’s top AI infrastructure providers.
3. Multi-Cloud Strategy & Government Cloud
- Build-Out Expand Total Addressable Market
Multi-Cloud Partnership With Google Cloud
Amazon and Google Cloud launched a fast-deploy multi-cloud network service, reducing setup time from weeks to minutes.
This:
- boosts enterprise reliability after the October outage
- increases AWS stickiness
- aligns with the rising multi-cloud architecture trend
Government & Defense Cloud Expansion
Amazon plans to invest $50B to build AI and HPC infrastructure for U.S. government clients across Top Secret, Secret, and GovCloud regions.
Government cloud is a high-margin, high-barrier, long-contract-duration business—exactly the type of segment that supports long-term valuation expansion.
Financial Highlights (Q3 2025)
Revenue
- $180.2B (+13% YoY) — beat expectations
Profitability
- GAAP operating income: $17.4B
- Adjusted operating income: $21.7B
- EPS: $1.95 (+36% YoY)
Cash Flow
- Operating cash flow (TTM): $130.7B (+16% YoY)
- Free cash flow: $14.8B
- Capex rose due to AI & data center expansion—necessary for long-term dominance.
Valuation: Upside Remains Underappreciated
- AMZN trades at ~32.5× forward earnings
- With ROIC rising from 3% → 16.5%, this reflects true business quality
- Sustained AWS AI momentum should support ~30× forward P/E
- Resulting Price Target: $270.48 (≈18% upside)
- Wall Street consensus upside: ~28%
Given AWS re-acceleration and AI infrastructure leadership, Amazon appears undervalued relative to its long-term growth potential.
Technical Analysis: Bullish Reversal Forming
AMZN closed at $233.24 (+1.77%), breaking above the 20-day SMA (230).
This signals:
- short-term trend reversal
- strengthening buying momentum
- potential move toward the next resistance at ~$240–245
Volume confirmation will determine whether this transition becomes a mid-term uptrend.
Risks to Watch
- Competition from Azure/OpenAI and Google Cloud/TPU
- Long ROI cycles for large AI/data center investments
- Valuation compression if growth stocks de-rate
- Regulatory or operational disruptions (e.g., cloud outages)
Conclusion: Amazon’s 2025 Weakness Sets Up a 2026 Rebound
Amazon enters 2026 with:
✔ accelerating AWS growth
✔ AI monetization across chips, models, and platforms
✔ new multi-cloud partnerships
✔ major expansion into high-value government cloud markets
The market is still underestimating these catalysts.
We maintain a BUY rating with a $270 target price.
Key events to monitor:
- AWS re:Invent announcements
- AWS AI workload growth
- U.S. government cloud contract wins
- Data center capex efficiency trends
