Amazon, a dominant force in the 21st-century stock market, has recently experienced a period of underperformance compared to the broader S&P 500 index. Following its fourth-quarter earnings report on February 5th, the stock saw a decline, reaching levels not seen since April 2025. This dip, attributed to Wall Street's short-term focus, overlooks the immense long-term potential of the technology giant.
Despite investor preoccupation with artificial intelligence (AI), Amazon's e-commerce and retail divisions continue to be a powerhouse. North American sales surged by 10% year-over-year last quarter, culminating in a staggering $426 billion for 2025. Crucially, profit margins within its North American commerce sector have steadily risen, hitting a record 9% last quarter and averaging 6.9% for the entirety of 2025. The rapid expansion of high-margin advertising and subscription services has propelled Amazon's North American retail business to nearly $30 billion in operating earnings last year, with projections indicating a potential $50 billion in operating income within the next two to three years, driven by continued growth and margin expansion.
The company's cloud infrastructure business, Amazon Web Services (AWS), stands out as its fastest-growing segment, benefiting significantly from increased AI spending. AWS revenue climbed 24% year-over-year last quarter, with total sales reaching $129 billion in 2025. Amazon plans to invest a substantial $200 billion in capital expenditures in 2026, primarily directed towards AWS. While these massive investments may temporarily impact short-term free cash flow, they are expected to sustain AWS's revenue growth, potentially reaching $250 billion in the next three years. With segment profit margins consistently above 30%, AWS alone could generate $75 billion in operating earnings.
While some investors express concerns about short-term cash flow impacts and Amazon's capacity for AI investment, a broader perspective reveals significant profit generation potential over the next three years. If AWS achieves $75 billion in earnings and North American retail contributes $50 billion, combined operating earnings could reach $125 billion. Including contributions from its international retail business, which now boasts over $150 billion in revenue, consolidated earnings could approach $150 billion in the coming years. Considering Amazon's current market capitalization of $2.2 trillion, these earnings estimates suggest a favorable valuation, positioning Amazon stock as an attractive investment opportunity for 2026 and beyond.