Amazon (NASDAQ: AMZN) has been a poor stock to own recently. While it rose following its Q2 earnings release, the stock has slowly sold off since then and is now up about 8% for the year, trailing the S&P 500 (SNPINDEX: ^GSPC). However, I think this could all turn around once again after Oct. 29, when Amazon reports Q3 earnings.
The reason is fairly clear, and investors have already seen it cause Amazon’s price tag to spike once already this year: cloud computing growth.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Amazon is the industry leader in cloud computing
Amazon may not be the first name you think of when discussing huge tech companies, but it should be high on the list. While most consumers are familiar with Amazon’s commerce site and delivery platform, Amazon Web Services (AWS) really steers the business. In fact, AWS — which supplies cloud computing — accounted for 60% of Amazon’s operating income in Q2, despite making up only 21% of revenue.
How? AWS’s operating margins are far superior to those of its commerce business, which is a notoriously razor-thin-margin industry.
While commerce still affects Amazon’s investment picture, investors must realize that Amazon doesn’t care much about it right now. Amazon is spending about $220 billion this year to expand its computing infrastructure and fuel AWS growth. It seems content with its current dominance in commerce and sees a major opportunity in cloud computing right now, thanks to booming demand for running AI workloads.
These investments have so far paid off, as AWS’s growth rate has significantly climbed over the past few quarters. Rewinding to Q4 2025, AWS’s growth was 24% year over year. Then it accelerated to 28% in Q1 2026. Amazon surprised investors by reporting impressive 37% growth in Q2, which caused shares to skyrocket earlier this year before eventually selling off.
If Amazon continues to meaningfully accelerate its AWS growth rate, say to the mid-40% range, it could ignite another run-up in stock price, as it would have a positive effect on Amazon’s operating margins. This, in turn, will cause earnings per share to rise faster, which the market will love.
If it can do that, Amazon’s stock should be primed to rise, because it’s actually pretty reasonably valued right now, at least compared to historical levels.
