The Motley Fool·2026-01-25 00:00Core Viewpoint - Amazon's success heavily relies on its cloud computing division, Amazon Web Services (AWS), which is expected to drive stock performance in 2026 after a challenging 2025 due to high valuation concerns [1][2]. Group 1: AWS Performance - AWS is starting to reaccelerate its growth, with a revenue increase of 20% year over year in Q3, marking the best growth rate in several years [6]. - Despite AWS accounting for only 18% of Amazon's total sales, it generated 66% of the company's operating profits in Q3, highlighting its importance to overall profitability [4][6]. - The cloud computing segment has strong operating margins, reported at 35% in Q3, contrasting with the thin profit margins typical in retail [4]. Group 2: Valuation and Market Position - Amazon's stock valuation has improved, now trading at 29 times forward earnings, aligning it more closely with other major tech stocks, which typically trade around 30 times forward earnings [8]. - The stock gained only 5% in 2025, but with the valuation issue resolved, there is optimism for a stronger performance in 2026 [2][7]. - The current market cap of Amazon is $2.6 trillion, with a gross margin of 50.05%, indicating a robust financial position [6].