Amazon had a rough year in 2025, something it is not used to. Other technology giants raced even faster and S&P 500 experienced a great year with 18% gain, but Amazon stock seemed like it was not in any hurry.
Amazon gained only 6% stock, and being associated with victory, it was no less than humiliation for them. However, disappointment in the markets usually gives rise to new hopes, and Amazon may be planning a comeback in 2026.
All Set for Recovery
Amazon’s performance in 2025 was evident and shocking, because it was an unusual case. Most of the other tech giants managed to gain profits, leaving Amazon investors behind, wondering when their wait would be over.
However, there is a positive side to underperformance, where aspirations are lowered, prices come down, and quality of the company becomes the sole factor for consideration.
As Amazon enters the next year, many segments of its core business are strengthening, and it is building a strong case that would bring a huge difference in the years ahead.
AWS Is Advancing at the Right Time
Though Amazon is quite often regarded as the king of retail and logistics, its most significant engine is Amazon Web Services (AWS). AWS is positioned right in the middle of two remarkable technology trends that the whole decade has witnessed, one being the cloud movement and the other being AI.
The once usual way of running one’s own servers is becoming extinct, and corporations are gradually moving their workloads to the cloud, which results in cost savings, complexity reduction, and enhanced resilience.
AWS, being the market leader, is one of the major beneficiaries of this transition. AI has been the driving force behind the shifts as well. Running advanced AI models requires enormous amounts of computing power, which is something that not many companies can afford to develop in-house.
They choose rather to rent tech space from the cloud providers, and AWS is one of the primary destinations for it. Demand was made very clear during the third quarter when AWS revenue increased by 20% compared to the previous year, this is the biggest growth rate for AWS in many years.
The reason why this is a big deal is that during the quarter, AWS was responsible for approximately 66% of Amazon’s operating profits. An AWS segment that is growing faster and is very profitable would greatly improve the earnings outlook for Amazon as it is heading into 2026.
Advertising is Transforming Amazon’s Margins
Another factor that has not received much attention that could be behind the success of Amazon is advertising. What used to be a supporting service of the marketplace has now turned into a mainstream high-margin business with a significant impact on profitability.
Advertising companies are known to have 30% to 40% margins and so are Amazon’s ad services. During the third quarter, Amazon’s advertising unit had a revenue of $17.7 billion. Even the most conservative margin estimate would mean billions in operating profit, which would be the same as the sum of the profits from Amazon’s North American and international commerce operations.
The good news is that the advertising division was the fastest growing area of the company in Q3 with a growth rate of 24% year over year. As advertising grows along with e-commerce, it is considered as a margin booster that makes the retail empire of Amazon much more profitable than the sales figures alone would suggest.
Valuation That Makes Sense
For years, the critics claimed that Amazon’s stock price was overvalued. The valuation of the company was so high that it allowed almost no room for mistakes, which drove the company to grow rapidly only for its multiple to be justified. However, that dynamic has changed.
Amazon after a slow 2025 is now trading at valuation levels that are closer to those of other Big Tech competitors. This re-adjustment provides the stock with more room to breathe, which in turn would make it possible for the business improvements to be reflected more in the share price gains.
In 2026, analysts see Amazon’s sales to increase by 11%, which is approximately the market average. However, the increase in profit would be something worth having. If the company continues to grow its AWS and advertising segments faster than the other parts of the business, its operating profits would become higher than the revenue growth.
This very combination of steady sales and accelerated earnings, is the one that often leads to stock outperformance.
Bottom Line
There is no need for Amazon to remake itself in order to perform well in 2026, all it has to do is wait for its strongest divisions to keep delivering. AWS is gaining momentum again, while advertising is the one that is creating margins, and concerns about market valuation are also dying down, so the conditions for a comeback year are all set.
Although markets are unpredictable, if Amazon manages to showcase its strengths, the year 2026 might be the time when the company that was once taken for granted by investors, will have a huge comeback.
