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Is Amazon Stock Poised to Rally on AI Services Revenue Expansion?
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Key Takeaways
Amazon's AWS AI business surpassed a $25 billion annual revenue run rate, growing at triple-digit rates.
AWS sales jumped 37% to $42.2 billion, while operating margin widened to 39.4% from 32.9%.
New AI launches and $1 billion in AI engineering investment expand AWS' enterprise and agentic AI offerings.
Amazon (AMZN - Free Report) is expanding the AI services it sells through Amazon Web Services (“AWS”), and its September 2026 launches added to that pipeline. AWS brought OpenAI's GPT-6 Astra to Amazon Bedrock and made the Amazon Quick desktop app generally available. It also made Moonshot AI's Kimi K3, with 2.8 trillion parameters and a one-million-token context window, available on Bedrock, while Amazon Connect Talent, an AI-powered hiring solution with voice interviews and candidate assessments, reached general availability. These launches give Bedrock more models to offer and extend AWS' agentic AI tools into workplace and enterprise use.
The business already has strong traction. In the second quarter of 2026, AWS' AI business passed a $25 billion annual revenue run rate, growing at triple-digit percentages year over year. Hundreds of thousands of customers now use Bedrock, and they spent more in the second quarter than in all prior quarters combined. Usage of Kiro, Amazon's coding agent, tripled from the previous quarter. Amazon is also investing $1 billion to create AWS Forward Deployed Engineering, a team of AI engineers who work directly with customers to build and deploy agentic AI solutions faster.
That demand showed up in the results. AWS segment sales rose 37% year over year to $42.2 billion, and segment operating income increased to $16.6 billion from $10.2 billion. AWS operating margin widened to 39.4% from 32.9% a year earlier.
For the third quarter of 2026, Amazon expects net sales of $197-$202 billion, indicating 9-12% year-over-year growth, and operating income of $22.5-$26.5 billion compared with $17.4 billion a year earlier. The company noted that sales growth would be nearly 400 basis points higher excluding Prime Day timing. The heavy spending carries risk, however. Trailing 12-month free cash flow fell to an outflow of $7.6 billion, mainly because purchases of property and equipment rose $66.1 billion, largely for AI. Amazon also flagged supply volatility for memory chips as a risk to its outlook.
Even so, AI revenues that are growing at triple-digit rates, expanding AWS margins and a steady stream of new launches suggest Amazon's AI services business could support further upside, as long as returns on its investment keep pace with spending.
Microsoft & Alphabet Step Up AI Cloud Competition
Amazon faces stiff competition from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) in AI cloud services. Microsoft's Azure and other cloud services revenues rose 43% in the fiscal fourth quarter ended June 30, 2026, and Azure revenues topped $100 billion for fiscal 2026. Microsoft also crossed 30 million paid Microsoft 365 Copilot seats and expects Azure growth of about 45% in constant currency for the fiscal first quarter. Alphabet's Google Cloud revenues climbed 82% to $24.8 billion in the second quarter of 2026, driven by enterprise AI solutions and infrastructure. Alphabet's cloud backlog reached $514 billion, though Alphabet's capital spending remains elevated.
Amazon shares have returned 11% in the year-to-date period, outperforming the Zacks Internet – Commerce industry’s growth of 1.2% and the Zacks Retail-Wholesale sector’s decline of 2.3%.
AMZN’s Yaer-to-date Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AMZN stock appears overvalued, trading at a forward 12-month price/earnings ratio of 21.99X, higher than the industry’s 20.65X. Amazon has a Value Score of D.
AMZN’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AMZN’s 2026 earnings is pegged at $13.03 per share, indicating an 81.73% increase from the figure reported in the year-ago quarter.
View the Zacks #1 Rank List
Image: Bigstock
Is Amazon Stock Poised to Rally on AI Services Revenue Expansion?
Key Takeaways
Amazon (AMZN - Free Report) is expanding the AI services it sells through Amazon Web Services (“AWS”), and its September 2026 launches added to that pipeline. AWS brought OpenAI's GPT-6 Astra to Amazon Bedrock and made the Amazon Quick desktop app generally available. It also made Moonshot AI's Kimi K3, with 2.8 trillion parameters and a one-million-token context window, available on Bedrock, while Amazon Connect Talent, an AI-powered hiring solution with voice interviews and candidate assessments, reached general availability. These launches give Bedrock more models to offer and extend AWS' agentic AI tools into workplace and enterprise use.
The business already has strong traction. In the second quarter of 2026, AWS' AI business passed a $25 billion annual revenue run rate, growing at triple-digit percentages year over year. Hundreds of thousands of customers now use Bedrock, and they spent more in the second quarter than in all prior quarters combined. Usage of Kiro, Amazon's coding agent, tripled from the previous quarter. Amazon is also investing $1 billion to create AWS Forward Deployed Engineering, a team of AI engineers who work directly with customers to build and deploy agentic AI solutions faster.
That demand showed up in the results. AWS segment sales rose 37% year over year to $42.2 billion, and segment operating income increased to $16.6 billion from $10.2 billion. AWS operating margin widened to 39.4% from 32.9% a year earlier.
For the third quarter of 2026, Amazon expects net sales of $197-$202 billion, indicating 9-12% year-over-year growth, and operating income of $22.5-$26.5 billion compared with $17.4 billion a year earlier. The company noted that sales growth would be nearly 400 basis points higher excluding Prime Day timing. The heavy spending carries risk, however. Trailing 12-month free cash flow fell to an outflow of $7.6 billion, mainly because purchases of property and equipment rose $66.1 billion, largely for AI. Amazon also flagged supply volatility for memory chips as a risk to its outlook.
Even so, AI revenues that are growing at triple-digit rates, expanding AWS margins and a steady stream of new launches suggest Amazon's AI services business could support further upside, as long as returns on its investment keep pace with spending.
Microsoft & Alphabet Step Up AI Cloud Competition
Amazon faces stiff competition from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) in AI cloud services. Microsoft's Azure and other cloud services revenues rose 43% in the fiscal fourth quarter ended June 30, 2026, and Azure revenues topped $100 billion for fiscal 2026. Microsoft also crossed 30 million paid Microsoft 365 Copilot seats and expects Azure growth of about 45% in constant currency for the fiscal first quarter. Alphabet's Google Cloud revenues climbed 82% to $24.8 billion in the second quarter of 2026, driven by enterprise AI solutions and infrastructure. Alphabet's cloud backlog reached $514 billion, though Alphabet's capital spending remains elevated.
AMZN’s Share Price Performance, Valuation & Estimates
Amazon shares have returned 11% in the year-to-date period, outperforming the Zacks Internet – Commerce industry’s growth of 1.2% and the Zacks Retail-Wholesale sector’s decline of 2.3%.
AMZN’s Yaer-to-date Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AMZN stock appears overvalued, trading at a forward 12-month price/earnings ratio of 21.99X, higher than the industry’s 20.65X. Amazon has a Value Score of D.
AMZN’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AMZN’s 2026 earnings is pegged at $13.03 per share, indicating an 81.73% increase from the figure reported in the year-ago quarter.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
Amazon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.