• Amazon Web Services and advertising are quietly powering Amazon’s profit engine, offsetting softer retailing and driving long-term leverage.
• Tariff headwinds and cautious guidance mask a business building strength in cloud, logistics and media.
• With the stock up just 2% in 2025, investors may be overlooking Amazon’s long-term potential. 

In a year defined by AI hype and macro uncertainty, Amazon (AMZN) is doing what it does best: Executing at scale. While the spotlight is on shiny startups and splashy initial public offerings (IPOs), the $2 trillion giant is quietly sharpening its edge, extracting more profit from retailing, tightening its hold on cloud and building a $50 billion ad empire. 

This isn’t the Amazon of five years ago. It’s leaner, sharper and powered by high-margin growth engines that deliver cash, not just clicks. In the sections ahead, we unpack how the “everything engine” is shifting into a higher gear, why Wall Street’s muted response may indicate it’s missing the bigger story and whether the stock’s modest 2% year-to-date gain is less a red flag and more a rare opening for long-term investors.

Four engines are driving growth

In today’s on-demand economy, Amazon has quietly become one of the most influential and multidimensional companies on the planet. What began as an online bookstore is now a four-engine machine: retailing, cloud, advertising and media — each powered by one of the most sophisticated logistics networks ever built. The stock’s modest move masks a business that’s steadily tightening its grip on consumers, enterprises and advertisers.

At the center of it all is Amazon Web Services (AWS), the crown jewel of Amazon’s empire and its most profitable growth engine. What began as an experiment to monetize excess server capacity now brings in over $29 billion per quarter, growing 15%-20% annually despite intensifying competition. AWS’s advantage isn’t just scale. It’s the combination of custom AI chips like Trainium and Inferentia, a thriving third-party Marketplace and deep enterprise ties that transform cloud migrations into decade-long partnerships. For organizations racing to scale generative AI while meeting strict compliance and security needs, AWS isn’t just a vendor. It’s infrastructure by default.

On the consumer front, Prime has grown far beyond a shipping perk. With over 240 milli on members worldwide, it now anchors a growing system spanning retailing, health, grocery and payments. Seamless return options through Kohl’s (KSS) and United Parcel Service (UPS) eliminate post office runs, while Whole Foods Market (WFM)’ Scan & Go and in-store Prime discounts help lock in grocery loyalty. Amazon Pharmacy, boosted by its partnership with the Cigna (CI) network, adds doorstep delivery of generics and deepens the company’s footprint in health and wellness. Meanwhile, Amazon One, its palm-scan payment technology, is gaining momentum in stadiums, malls and Whole Foods stores, quietly transforming a convenience feature into a powerful biometric loyalty engine.

Meanwhile, Amazon’s media and advertising arms are scaling fast. In the United States, Prime Video leads the streaming market with a 22% share, ahead of Netflix’s 21%. And Prime Video is expanding aggressively with original programming and blockbuster sports rights, including an 11-year deal to stream NBA and WNBA games. But the real powerhouse is Amazon’s end-to-end monetization loop: From sponsored product placements on its retail site to Fire TV ads and Twitch banners. Ad revenue now tops $56 billion annually, which provides the firepower to keep investing in this division.

If Amazon’s business is a flywheel, it spins fastest on Prime Day. The 2025 edition, running July 8–11, spans 96 hours and goes far beyond flash sales. Early access perks reward Prime “Insiders,” while Amazon Live streams build urgency with influencer-led demos and real-time coupon drops. Curated “Home & Hearth” bundles feature Echo, Ring and Philips Hue to showcase the company’s smart home ecosystem. Partner perks from Grubhub+, Uber One, Levi’s and Nike add lifestyle appeal, while localized “Prime Day Studios” in select cities bring the brand offline, offering device trials, Fire TV fitness classes and exclusive merch. This year’s event isn’t just a shopping blitz. It’s a full-scale, hybrid retail-media experience that activates every lever in Amazon’s flywheel.

For investors, Prime Week is more than a sales spike. The annual event shows how deeply Amazon is embedded in consumer habits, enterprise strategies and global infrastructure. And with the stock still lagging behind broader benchmarks in 2025, it’s a timely reminder that some of the strongest foundations for growth are being built in plain sight.

Why Amazon’s Q1 deserves a closer look

Amazon’s first-quarter numbers tell a story of shifting gears. While growth in revenue has decelerated to single digits, the profit engine is hitting new highs. Net sales rose 9% year-over-year to $155.7 billion — not exactly headline-grabbing for a company known for hypergrowth — but operating income surged 20% to $18.4 billion. Look past the top-line slowdown, and a clearer narrative emerges: High-margin segments are succeeding, retailing is becoming more efficient and excess capital is being channeled into moonshot initiatives that could shape Amazon’s next decade.

AWS remains Amazon’s earnings powerhouse — not for posting the fastest growth, but for delivering the most reliable and robust profits. In Q1, cloud revenue rose 17% to $29.3 billion, its slowest pace in years and slightly below expectations. But the real story lies beneath the surface: Operating income jumped 22% to $11.5 billion, thanks to AWS’s unmatched margins. As growth in revenue moderates, profitability is accelerating, driven by a pivot toward higher-value, AI-intensive workloads. Amazon’s custom chips, Trainium 2 and Inferentia, are powering generative AI services, pulling enterprise clients in with a blend of performance, scalability and cost efficiency.

Long-term cloud deals with clients like Experian, RWE, and a widening array of firms in pharma, finance, and the public sector reflect a strategic shift. The company is pursuing fewer one-off projects and instead relying on more multi-year, mission-critical deployments. In short, AWS may not be growing as quickly as in the past, but it’s growing smarter. And the accelerating profit curve speaks for itself.

If AWS is the cash funnel, advertising is the accelerant. Ad sales jumped 19% to $13.9 billion, outpacing both retailing and the cloud, as sponsored listings, Fire TV banners and Twitch takeovers turned consumer attention into pure margin. That high-octane growth helped lift operating income in both North America and International retailing, despite more modest revenue gains of 8% and 5%. It’s a clear reflection of smarter fulfillment, increasing automation and CEO Andy Jassy’s unwavering focus on cost discipline.

The balance sheet echoes the theme of disciplined strength. Operating cash flow over the trailing 12 months rose 15% to $113.9 billion, while free cash flow dipped to $25.9 billion, reflecting heavy investment in data centers, Project Kuiper’s satellite buildout and the rollout of the Zoox robotaxi. Backed by more than $113 billion in liquidity, Amazon has ample funding to keep investing at scale without sacrificing financial flexibility.

Still, Amazon’s outlook came with a note of caution. For Q2, the company guided operating income between $13 billion and $17.5 billion. That was below the high end of Wall Street’s expectations and flagged “tariffs and trade policies” as key headwinds. At the center of the concern are the Trump-era import levies, some reaching as high as 145% on goods sourced from China. That’s a direct hit to Amazon’s retail engine, where many private-label lines and third-party marketplace sellers — who now drive over half of all platform sales — depend on Chinese manufacturing. And some sellers are already raising prices or cutting ad spending to mitigate the effects of the tariffs. 

The company’s CEO, Andy Jassy, is navigating these crosscurrents. He stepped into the role in 2021 after building AWS from the ground up. Known for his steady, analytical approach, Jassy struck a tone of measured optimism when addressing tariff-related uncertainty. While he acknowledged the challenge of forecasting trade policy, he cited Amazon’s global, diversified seller network as a critical buffer that enables the company to pivot without compromising its low-price value proposition. “It’s hard to tell what’s going to happen with tariffs right now,” he told investors, “but we’ve been through unpredictable environments before and come out stronger.”

Why Amazon’s valuation still offers room to run

Valuation is where the Amazon debate often heats up. On the surface, the stock doesn’t look cheap. A trailing GAAP P/E of 36, a 3.6x sales multiple and a 7.8x book value all land well above sector norms. But Amazon has never been a conventional company and traditional metrics don’t always capture the full scope of a business that spans everything from cloud computing and logistics to digital ads and live sports.

What those multiples capture isn’t just Amazon’s scale — it’s the company’s unparalleled optionality. Not many businesses combine such a vast infrastructure footprint with high-margin, recurring revenue engines and so many levers for future growth. AWS alone commands a premium multiple on its earnings power, but it’s just one piece of the puzzle. Prime’s subscription economics, a $50+ billion ad business, and rapidly expanding verticals like pharmacy and freight create a layered, durable cash flow story. Amazon isn’t just a retailer or a cloud provider. It’s a launchpad for new businesses, each capable of scaling globally within its existing system.

Wall Street appears to agree. Of the 71 analysts covering Amazon, 69 rate it a “buy” or “overweight,” with an average price target of $242, about 10% above current $220. While some investors may hesitate to pay a premium in a choppy macro environment, the long-term bull case is straightforward: Amazon has already built the infrastructure, distribution network and digital system that most rivals are still trying to assemble. Today’s valuation could begin to look like a bargain based on future earnings power as margins expand, capital expenditures normalize and AI-fueled cloud demand accelerates.

For long-term investors, the current setup is quietly compelling: Muted performance year-to-date (+2%), strong analyst conviction and deepening momentum beneath the surface. Instead of chasing the latest headline, patient investors may want to treat Amazon as a core holding, building exposure gradually with an eye toward multi-year compounding. When it comes to scale, leverage and reinvention, few companies are better-positioned for the next wave of digital transformation.

Investment takeaways

Amazon’s growth story has always been about scale, but increasingly it’s also about leverage. From cloud to ads to subscriptions, the company is transforming its vast system into a high-margin engine. AWS remains the profit anchor, even as growth moderates, while the ad business generates over $50 billion annually with expanding margins. On the retail side, automation and smarter logistics are driving operating efficiency, helping offset macro headwinds like tariffs and shifting trade policy.

Prime Week highlights just how far Amazon has come. What began as a flash sale has morphed into a multi-day, multi-platform showcase of loyalty perks, media tie-ins and systemic lock-in — from smart-home bundles to credits with Uber (UBER) and Grubhub (GRUB). It’s also an underappreciated Q3 demand catalyst. Layer in AWS’s long-term AI contracts, tighter cost controls in fulfillment, and steady gains in pharmacy, payments and live sports, and the gap between growth in revenue and earnings power continues to widen.

Guidance may be cautious, but the broader trajectory remains constructive. Tariffs and global uncertainty have kept sentiment subdued and the stock relatively flat, up just 2% year-to-date. But that disconnect between execution and perception may offer long-term investors a rare window. With 69 of 71 analysts rating the stock a “buy,” Amazon isn’t exactly a secret. Yet its rare combination of recurring revenue, platform-scale infrastructure and innovation-driven growth potential makes Amazon one of the few megacap stocks still offering meaningful upside for long-term investors.

Andrew Prochnow, Luckbox analyst-at-large, has traded the global financial markets for more than 15 years, including 10 years as a professional options trader.

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