Amazon's stock underperformed the market last year but appears set for a rally in 2026, according to recent observations. The company is demonstrating strong operating leverage in its e-commerce operations, while revenue growth at its cloud computing unit, Amazon Web Services (AWS), is beginning to accelerate.
Currently, the stock trades at a forward price-to-earnings ratio below 26 times 2026 analyst consensus earnings estimates. This valuation is one of the lowest in its history and is significantly lower than retail peers Walmart and Costco, which trade at 38 times and 41 times next year's analyst EPS estimates, respectively. Amazon's retail sales have been growing at a faster pace than these competitors.
In e-commerce, Amazon has become the world's largest manufacturer and operator of robots. The company continually advances robot capabilities, with robots working around the clock to perform tasks humans cannot, saving costs and improving efficiency. Artificial intelligence is also being deployed, with the DeepFleet AI model coordinating robots, assigning tasks, and ensuring efficient routes. AI further optimizes delivery routes for drivers, helps locate drop-off points, and predicts inventory storage to streamline the supply chain.
These efforts contributed to a 28% increase in North American adjusted operating income last quarter on an 11% revenue increase. Meanwhile, AWS revenue accelerated in Q3, rising 20%. The company faced capacity constraints during that quarter and has begun ramping up its Project Rainier data center, built exclusively for Anthropic. This new facility will be powered entirely by custom Trainium chips.
Amazon also signed a seven-year, $38 billion deal to provide compute power to OpenAI using Nvidia graphics processing units. Separate talks are ongoing about a potential investment in a large language model maker that could involve the use of Amazon's custom AI chips. Given strong demand for AI infrastructure and services, the company plans to increase its capital expenditure budget in 2026, which is expected to drive further growth at AWS.
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