AI Cloud Concerns Hover Over Amazon Stock. But Analyst Says Don't Forget This 'Crown Jewel.'

""Over the past five years, Amazon has built the third-largest ad business in the world, behind only (Facebook parent) Meta and Google, which are 20 and 25 years old, respectively," Needham analyst Laura Martin wrote in a client note. "Many investors miss the importance of advertising to the Amazon story, because ad revenues are (less than) 10% of total Amazon sales." Amazon advertising revenue has grown more than 20% annually since 2019, Martin said, twice the pace of Amazon's overall sales growth."

""However, in the one- to three-year time frame, we think Amazon's ad business is more important to ROICs (return on invested capital). Amazon's cloud business is responsible for more than 80% of Amazon's $100 billion (estimated) capital expenditures in 2025, has 50% lower margins than ad revs, and has many large-scale global competitors. None of these negatives are true for the advertising business.""

"Amazon Web Services gets a lot more attention because it has long been the profit-driver for the tech behemoth. It's also in focus because generative AI models require huge amounts of cloud resources. Amazon is the top cloud provider by revenue but it faces strong competition for AI-related business from Microsoft ( MSFT), Alphabet's ( GOOGL) Google and Oracle ( ORCL)"

Amazon has built the third-largest advertising business globally, behind Meta and Google. Advertising revenues are under 10% of total sales but have grown over 20% annually since 2019, roughly twice overall sales growth. The advertising unit leverages the ability to target high-intent shoppers at the moment of purchase, producing higher margins than cloud. Amazon Web Services remains the primary profit driver and faces strong competition for AI-related workloads. Cloud is expected to account for more than 80% of Amazon's estimated $100 billion capital expenditures in 2025 and shows lower margins than advertising. The stock carries a buy rating with a price target of 265 and traded near 220.62.

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