After three consecutive years of essentially flat total returns, Amazon’s shares are set for an upgrade to Buy as analysts project a meaningful inflection in 2026. The cloud unit, Amazon Web Services, reported 20% year-over-year revenue growth last quarter and just signed a seven-year, $38 billion deal to supply compute power to a major AI developer. Meanwhile, the advertising division delivered $17.7 billion in revenue last quarter, up 24% year-over-year, helping to lift group gross margins back toward 50%. At a forward price-to-earnings multiple near 25× 2026 estimates—well below the 40× multiples on Walmart and Costco—Amazon appears attractively valued if management can sustain the current operating leverage.

Investors should temper enthusiasm with two key risks. First, the return on capital for Amazon’s rising AI capex remains unproven: the company plans to spend over $125 billion in 2025 on data-center build-out and robotics integration, but the timing and magnitude of cash returns from these investments are uncertain. Second, North American e-commerce operating margins, which expanded by 28% last quarter against an 11% revenue gain, could face pressure if logistics costs or labor rates climb faster than anticipated. Given these caveats, dollar-cost averaging into any pullbacks ahead of material catalysts—such as quarterly earnings or major product launches—may offer a more favorable risk/reward profile for new positions in Amazon stock.