Amazon's (AMZN Quick QuoteAMZN - Free Report) stock performance in 2025 has disappointed investors, with shares declining 5.8% year to date despite the company delivering robust first-quarter 2025 results that exceeded expectations. As the e-commerce and cloud computing giant navigates evolving market dynamics, investors face a critical decision: Whether to maintain their positions or wait for better entry opportunities in the second half of 2025.

Amazon's first-quarter 2025 results demonstrated the company's operational resilience, with revenues reaching $155.7 billion, representing 9% year-over-year growth. Net income surged 64% to $17.1 billion, while earnings per share climbed to $1.59 from $0.98 in the prior-year period. Operating income expanded 20% to $18.4 billion, significantly outpacing the high end of management's guidance range.

The company's diversified revenue streams continued to show strength across segments. North America segment revenues grew 8% to $92.9 billion, while International operations posted 8% growth excluding foreign exchange headwinds. These results suggest Amazon's core retail operations remain robust despite macroeconomic uncertainties and evolving consumer spending patterns.

However, free cash flow declined substantially to $25.9 billion from $50.1 billion in the trailing 12 months, primarily due to increased capital expenditures of $87.9 billion focused on AI infrastructure and fulfillment network expansion. This investment cycle reflects Amazon's strategic positioning for future growth, but pressures near-term cash generation.

Amazon's valuation metrics raise questions about near-term upside potential. The company's forward 12-month Price-to-Sales ratio of 3.04X stands significantly higher than the Zacks Internet - Commerce industry average of 2X, suggesting the stock may be fully valued at current levels.

AMZN’s P/S F12M Ratio Depicts Premium Valuation

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AWS Growth Momentum Despite Capacity Constraints

Amazon Web Services maintained its impressive trajectory with 17% year-over-year growth, generating $29.3 billion in quarterly revenues and achieving a $117 billion annualized run rate. AWS operating margins expanded to 39.5%, demonstrating the segment's scalability and pricing power in enterprise cloud adoption.

The division faces supply constraints that limit its ability to capture additional AI-driven demand. Management indicated that faster capacity deployment could drive higher revenue growth, suggesting AWS performance may accelerate as infrastructure bottlenecks ease throughout 2025. The AI business alone represents a multi-billion-dollar annual run rate with triple-digit growth rates, positioning AWS advantageously in the generative AI transformation.

AWS backlog reached $189 billion with a 4.1-year weighted average life, providing substantial revenue visibility and supporting future growth projections. New customer acquisitions spanning Adobe, Uber, and Nasdaq demonstrate continued enterprise adoption across diverse industries.

AI Innovation as a Key Growth Driver

Amazon's AI initiatives represent a significant competitive advantage and growth catalyst. Recently, AMZN announced a new and improved agentic Amazon Q Developer experience in the AWS Management Console, Microsoft Teams, and Slack. Amazon Q Developer can now answer more complex queries than ever before in the AWS Management Console chat, offering deeper resource introspection and a dynamic, more interactive troubleshooting experience for users.

However, competition in agentic AI is intensifying rapidly with significant advancements from tech giants, including Microsoft (MSFT Quick QuoteMSFT - Free Report) , Nvidia (NVDA Quick QuoteNVDA - Free Report) and Alphabet (GOOGL Quick QuoteGOOGL - Free Report) -owned Google. Microsoft is integrating advanced AI agents into its business applications, with new security capabilities being rolled out through Microsoft Security Copilot. Google's collaboration with NVIDIA on next-generation AI hardware will power advanced reasoning models, while NVIDIA itself has launched its Llama Nemotron family of reasoning models specifically for agentic AI platforms. The partnership between LTIMindtree and Google Cloud further demonstrates how enterprise adoption of agentic AI is accelerating across industries.

With a 5.8% decline in the year-to-date period, AMZN has underperformed both the broader Zacks Retail-Wholesale sector and the S&P 500, which returned 2.2% and 0.4%, respectively. Shares of Microsoft and Nvidia have returned 9.6% and 2.3% while Alphabet has plunged 10.7%, respectively, in the same time frame.

AMZN’s Year-to-Date Performance

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AMZN also launched Claude 4 models through Amazon Bedrock, offering advanced hybrid reasoning capabilities that toggle between instant responses and extended thinking for complex workflows. These models, particularly Claude Opus 4, establish new benchmarks in coding performance and autonomous agent capabilities.

The introduction of Alexa+ marks Amazon's evolution toward action-oriented AI agents capable of multi-step task execution. Early user feedback indicates strong adoption potential, though broader deployment remains in early stages. Amazon's Nova foundation models continue expanding with thousands of customers, including Slack, Siemens, and Coinbase, integrating the technology.

These AI developments extend beyond AWS into retail operations, where generative AI powers product discovery, review summaries, and personalized shopping experiences. The integration of AI across Amazon's ecosystem creates cross-selling opportunities and enhances customer engagement across touchpoints.

Operational Challenges and Tariff Headwinds

Amazon faces several operational headwinds that may impact near-term performance. Tariff uncertainty creates inventory management complexities and potential cost pressures, though management expressed confidence in the company's diversified supplier base and operational flexibility. The company has implemented forward buying strategies and inventory repositioning to mitigate potential disruptions.

Infrastructure investment requirements strain cash flow generation while positioning Amazon for long-term market leadership. Capital expenditures focused on AI capacity, fulfillment automation, and Project Kuiper satellite deployment represent necessary investments but pressure short-term financial metrics.

The Zacks Consensus Estimate for 2025 net sales is pegged at $693.68 billion, indicating growth of 8.73% from the prior-year reported figure. The Zacks Consensus Estimate for 2025 earnings is pegged at $6.31 per share, which indicates a jump of 14.1% from the year-ago period.

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Investment Outlook: Hold or Wait Strategy

Amazon's fundamental business strength supports a holding strategy for current investors, particularly given the company's market-leading positions across multiple high-growth sectors. The AI transformation cycle, AWS expansion, and retail innovation initiatives provide multiple avenues for sustained growth acceleration.

However, new investors may benefit from waiting for better entry points in the second half of 2025. Potential catalysts, including tariff resolution, AI capacity expansion, and seasonal retail strength, could drive stock appreciation, but current valuations may not fully reflect near-term execution risks.

The combination of strong operational performance, strategic AI positioning, and diversified revenue streams makes Amazon attractive for long-term investors willing to navigate short-term volatility. For those seeking optimal entry timing, monitoring AWS capacity deployment progress and macroeconomic developments may reveal more favorable purchasing opportunities ahead. AMZN currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.