Amazon’s (AMZN) days on the losing side of the AI arms race—at least so far in 2025—may be numbered. After crushing expectations in its highly anticipated Q3 earnings report, Amazon stock jumped nearly 10% in the following trading session, bringing year-to-date gains to about 11%—though still trailing the broader S&P 500 (SPX).
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The reacceleration of AWS’s growth and the steady performance of its consumer retail segments brought something Amazon hadn’t managed in recent quarters. With skepticism running high—and the market suspecting that the company’s slower growth might reflect structural issues rather than just capacity constraints—there was significant tension heading into Q3. Amazon, however, managed to surprise with results that were far better than expected.
Amid the largest investment cycle in its history, Amazon has now demonstrated that additional capacity can translate directly into top-line growth—and do so efficiently. This marks a reassuring validation of a thesis that had begun to face skepticism. In this context, a re-rating is entirely justified, which is why I’m maintaining a Buy rating on Amazon stock.
AWS Delivers the Rebound Everyone Was Waiting For
More than simply delivering an all-around earnings beat, the Seattle-based giant managed to prove to the market that it’s once again taking command of the cloud space—reigniting investors’ confidence in the process.
Before the earnings release, Amazon was under pressure from a slowdown in AWS growth, which has become the company’s most important profit driver. Over the last three quarters leading up to Q3, AWS’s momentum had clearly faded. In Q4 of last year, sales were growing at 19% year-over-year, but then stalled for three consecutive quarters. From Q1 to Q2, growth slipped to 17% YoY. For Q3, the market expected at best a modest reacceleration—something slightly above the previous quarters. But Amazon went further.
In Q3, the e-commerce titan posted AWS revenue growth of 20%, marking its strongest annual growth rate since Q3 2022—back when the business was still expanding above 30%. While investors hoped for some improvement, few expected a rebound this strong, especially after repeated warnings from management about capacity constraints and lingering fears of market share losses to competitors.
According to CEO Andy Jassy, the main driver behind this upside surprise was a clear pickup in demand—particularly for AI workloads. Customers are increasingly migrating training and inference to AWS infrastructure (notably through Bedrock and SageMaker), powered by Amazon’s expanding AI ecosystem and its Trainium 2 chips, which are generating strong commercial traction. Jassy also highlighted significant progress in broadening capacity—adding 3.8 GW of power in the last 12 months—and a record-breaking $200 billion backlog, which even surpassed the total deal volume from the entire third quarter.
Margins That Matter
If growing AWS sales to the highest level in the past eleven quarters wasn’t impressive enough, Amazon went even further. AWS managed to outperform expectations without sacrificing margins. While management had previously warned of potential volatility in operating margins due to the heavy investment cycle in infrastructure—with massive CapEx being deployed into highly depreciating assets like data centers—Q3 showed a healthy rebound instead. AWS’s operating margin came in at 34.6%, up from 33% in Q2.
This reacceleration in profitability shows that Amazon has been able to add capacity and monetize it quickly, a crucial signal for investors trying to assess the returns on the company’s massive investment cycle.
Over the last twelve months, Amazon’s CapEx (reported as “Purchases of property and equipment”) reached an astounding $120 billion—fully funded by Amazon’s strong operating cash generation. In Q3 alone, the company invested $35.1 billion, a 55% increase year-over-year, with the vast majority directed toward infrastructure to meet the surging demand for AI-driven cloud services.
The combination of AWS regaining solid sales growth and maintaining strong margins is exactly what was needed for a potential re-rating of Amazon’s stock. After a few quarters of volatile growth trends and rising skepticism, the company finally delivered the kind of performance that could restore confidence in its long-term trajectory.
The Other One-Third Still Matters
If AWS is the main engine behind Amazon’s bullish thesis, it’s important to remember that the company’s entire e-commerce operation—encapsulated by the North America and International segments—still represents 81% of total sales, even though it contributes only 34.4% of total operating income.
And because this portion accounts for roughly a third of Amazon’s profitability, the non-cloud side of the business shouldn’t be overlooked. In North America, Amazon delivered solid 11% year-over-year growth, matching the pace of the previous quarter. The International segment grew 10% YoY, slightly below Q2 but still firmly in double digits. Another bright spot was advertising, which maintained its strong 22% growth rate, in line with the prior quarter.
If we think of Amazon’s thesis as two-thirds driven by the cloud and one-third by retail and consumer-facing operations, the combination of exceptional AWS results and steady performance in North America and International supports the case for healthy multiple expansion.
At present, Amazon’s valuation has already rebounded from its October low of 32x earnings to around 37.3x, roughly in line with its twelve-month average but still well below the 40x–50x range where the stock traded before April’s “Liberation Day.”
In my view, a 40x floor is perfectly reasonable given Amazon’s improving ability to monetize cloud capacity and sustain growth. The Q3 results could help anchor this valuation level going forward—especially if equity markets maintain their bullish momentum into 2026, supported by a likely lower-rate environment.
Is Amazon a Buy, Hold, or Sell?
Amazon’s investment case seems like a no-brainer for Wall Street. The consensus from 42 analyst ratings over the past three months is entirely bullish, with not a single Hold or Sell recommendation in sight. The average price target for AMZN stands at $291.95, implying an upside potential of roughly 19.5% over the coming 12 months.
Amazon Proved Its Point and the Market Took Notice
In Q3, Amazon needed above all to prove to the market that its massive capital expenditure ramp-up was paying off—that all those billions invested were justified by a clear reacceleration in AWS growth alongside expanding capacity.
The company not only showed that it can grow revenues faster with more capacity, but also that it can monetize that capacity more efficiently—a double win for the e-commerce giant. From this perspective, there’s still plenty of room for a re-rating, especially considering that valuation multiples remain well below pre-Liberation Day levels, while the risk backdrop that worried investors six months ago has improved significantly, supported by the strong results posted in Q3. That said, I remain constructive on the AMZN thesis and continue to rate the stock as a Buy.