Why Amazon's Profit Engine Is Firing on All Cylinders Despite Stock Weakness

The Tale of Two Metrics

Amazon’s 2025 journey reveals a classic market disconnect: while S&P 500 gained 16%, Amazon delivered only 7% returns, making it essentially tied with Tesla as the worst performer among Magnificent Seven stocks. But here’s the plot twist—looking purely at revenue growth misses the entire story.

The real issue isn’t Amazon’s business fundamentals; it’s how the market has priced them. Trading around 30 times forward earnings throughout 2025, the stock commanded a premium valuation while posting growth rates around the 10% range. When you layer in slower revenue expansion compared to peers, investors understandably bid the stock down.

Where The Money Actually Comes From

Most people fixate on Amazon’s e-commerce operation, which posted solid 10% year-over-year growth in Q3—one of its best quarters in ages. Third-party seller services climbed 12%. Respectable numbers, but they don’t explain where Amazon actually generates its profits.

AWS is the profit juggernaut. Amazon Web Services, the cloud computing division, contributed only 18% to Q3 revenues but accounted for a stunning 66% of operating income. That’s the profit multiplier investors should focus on. Q3 saw AWS revenue surge 20%, fueled by a double helix of secular tailwinds: companies migrating from on-premise systems to cloud infrastructure, plus the explosion of artificial intelligence workloads demanding computational power.

Advertising is becoming the second profit engine. Amazon’s ad services grew at an impressive 24% in Q3, leveraging the company’s unmatched consumer data advantage (customers browse Amazon when they intend to purchase). While not segmented as a standalone unit like AWS, advertising margins are almost certainly comparable to high-margin players like Meta Platforms or Alphabet.

The Profit Growth Story Rewrites The Valuation Picture

Here’s why how to buy Amazon stock becomes more compelling when you examine returns through the profit lens: the fastest-growing segments (AWS and advertising) are simultaneously the highest-margin ones. This means Amazon’s bottom-line growth is accelerating faster than its top-line growth.

When you strip away the revenue-focused perspective and focus on operating income expansion, the stock’s valuation doesn’t look nearly as expensive. AWS’ acceleration trajectory and advertising strength are structural advantages that should persist into 2026, positioning the company for a strong year ahead.

The market may have penalized Amazon for disappointing growth relative to peers, but it’s simultaneously undervalued the profitability mix shift occurring beneath the surface. Investors eyeing returns need to distinguish between headline revenue metrics and the actual profit-generation mechanics that determine long-term shareholder value.