Prediction: Amazon's Falling Stock Will Fuel 2026 Gains

Core Viewpoint - Amazon has underperformed the S&P 500 over the last five years, with a share increase of only 26.3% compared to over 90% for the index, but the long-term growth potential remains strong despite short-term market reactions [1][2]. E-commerce Performance - North American sales for Amazon grew by 10% year over year, reaching $426 billion for the entirety of 2025 [6]. - Profit margins for North American commerce have expanded to a record 9% last quarter and 6.9% for 2025, driven by growth in high-margin advertising and subscription services [7]. - The North American retail business generated nearly $30 billion in operating earnings last year, indicating robust profitability [7]. Future Earnings Potential - With continued growth and margin expansion, earnings are expected to increase significantly in 2026 and beyond, with a potential operating margin of 10% on $500 billion in revenue translating to $50 billion in operating income [8]. AWS Growth and Investment - Amazon Web Services (AWS) is the fastest-growing segment, benefiting from increased AI infrastructure spending, which is expected to drive revenue growth [9]. - AWS revenue grew by 24% year over year last quarter, totaling $129 billion in 2025, with projections suggesting it could reach close to $250 billion if growth is maintained [10]. - Management plans to invest $200 billion in capital expenditures in 2026, primarily for AWS, which may impact short-term cash flow but is expected to support sustained revenue growth [9][10].