"Amazon (NASDAQ: AMZN) is one of the world's most recognizable companies. Its e-commerce platform is responsible for delivering billions of dollars worth of goods every year in over 100 countries around the globe, and has led the e-commerce revolution. However, the e-commerce shift has largely played out, and with artificial intelligence (AI) investing dominating the market, it may seem like Amazon stock is out of favor."
"Amazon's commerce divisions are well known, but there is a fact that's not as widely known: This business isn't as profitable as one might think. In Q2, Amazon's North American commerce divisions generated $7.5 billion in operating profit on sales of $100 billion. However, most of that profit likely comes from one unlikely source: digital advertisements. Amazon's advertising services divisions have been rapidly growing behind the scenes, and are a large reason why Amazon's operating profits have improved over the past few years. In Q2, ad services revenue rose 23% year over year, making it the fastest-growing division within Amazon."
AWS and advertising services are powering Amazon's rapid and highly profitable growth while the core e-commerce business generates large scale but lower margins. North American commerce produced $7.5 billion in operating profit on $100 billion of sales in Q2, with a sizable share of profit likely tied to digital advertising. Ad services revenue grew 23% year over year in Q2, becoming the fastest-growing division. Amazon also participates in the AI arms race and retains a large commerce platform. The mix of high-growth, high-margin segments and a strong base supports potential long-term outperformance driven by operating-profit expansion.
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