Amazon Investors Bet on AWS to Pull Stock Out of Malaise
Amazon.com Inc. bulls are placing their bets on the company's stock to reclaim its market leadership position after several years of lagging behind its Big Tech competitors. This optimism is largely centered on the potential of Amazon Web Services (AWS), the cloud-computing business that is poised to capitalize on the explosive growth of artificial intelligence technology.
AI-Driven Optimism for AWS and E-commerce
The renewed confidence among investors stems from the anticipated surge in demand for AWS, which is strategically positioned to benefit from the rapid advancement of AI. Additionally, artificial intelligence is expected to enhance Amazon's core e-commerce operations by enabling more precise advertising targeting and improving efficiency across its extensive logistics network.
Pat Burton, a portfolio manager at Winslow Capital Management, emphasized this point, stating, "An improvement in AWS should help materially in terms of the perception of the stock as being the relative loser in cloud." Burton counts Amazon as one of his largest overweights among the Magnificent Seven tech giants.
Historical Underperformance and Valuation
Amazon shares were the poorest performers among the Magnificent Seven in 2025, marking their seventh consecutive year of trailing the group. The stock's modest 5% gain for the year paled in comparison to the 20% increase in the tech-heavy Nasdaq 100 Index. As of recent trading, the stock has shown little change, but it is now trailing only Alphabet Inc. as other Magnificent Seven members experience sell-offs at the start of the year.
This prolonged underperformance has left Amazon's stock relatively inexpensive by historical standards. Currently, Amazon is trading at approximately 24 times projected earnings over the next 12 months. This valuation is lower than that of Apple Inc., Microsoft Corp., and Alphabet, and significantly below its five-year average of 36.
Alphabet's Rebound as a Model
Wall Street analysts point to Alphabet's remarkable recovery in 2025 as a blueprint for what could happen with Amazon. Google's parent company was once viewed as a laggard in the AI race, with its stock performance trailing Amazon and the Bloomberg Magnificent 7 index in 2023 and 2024. At this time last year, Alphabet's shares were the cheapest among the group of tech giants.
The turning point came when Alphabet released a new version of its Gemini AI model on March 25, 2025. The stock surged as news of its capabilities spread, soaring 89% since then. This performance was the best in the Magnificent Seven and placed Alphabet among the top 25 gainers in the S&P 500 Index over that period.
Amazon as the Next AI Enthusiasm Play
Investors now see Amazon as the next Big Tech stock poised to capture a similar burst of AI-driven enthusiasm. Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, noted, "It looks like Google did 18 months ago. Things can change very quickly in this sector of the business."
Sentiment is already shifting in Amazon's favor. AWS reported its fastest growth in years in the company's most recent results, released in October. This was followed by a significant $38 billion deal to provide computing power to OpenAI. In December, reports emerged that OpenAI is in talks to raise at least $10 billion from Amazon and utilize its homegrown Trainium chips. A recent conference further underscored confidence in the company's cloud and emerging semiconductor businesses.
