Amazon(US:AMZN) The Motley Fool·2026-01-02 11:00Core Viewpoint - Amazon underperformed the market in 2025, with a stock increase of only 6% compared to the S&P 500's 18% gain, but this underperformance may set the stage for a stronger performance in 2026 [1][2] Group 1: Amazon Web Services (AWS) - AWS is experiencing significant growth, benefiting from the general migration to cloud computing and its role in artificial intelligence, as companies prefer renting computing power rather than building their own data centers [4][6] - In Q3, AWS revenue rose 20% year over year, marking its fastest growth rate in several years, and accounted for 66% of Amazon's operating profits during that quarter [7] Group 2: Advertising Services - Amazon's advertising services generated $17.7 billion in revenue during Q3, contributing significantly to the company's overall profitability, with an estimated operating profit of $5.3 billion based on typical advertising margins [8] - The advertising division posted a 24% year-over-year growth rate, indicating its critical role in enhancing Amazon's commerce operating margins and setting the company up for a strong 2026 [9] Group 3: Valuation and Growth Expectations - Amazon's stock valuation has become more reasonable, now trading at a level comparable to its peers, allowing for potential stock price appreciation aligned with business performance [10][12] - Analysts expect Amazon to grow sales at around 11% in 2026, with operating profit growth anticipated to outpace revenue growth, driven by strong results from AWS and advertising services [13]