Key Takeaways:
- Amazon’s stock is currently undervalued compared to its peers, with a lower price-to-sales ratio.
- The company’s Amazon Web Services (AWS) cloud computing service is a leading player in the AI infrastructure market.
- Amazon is investing heavily in building out its AI infrastructure, including constructing data centers and developing custom AI chips.
- The company’s e-commerce business has low profit margins, but its AWS segment has a robust profit margin of 34.6%.
- Amazon’s capital expenditures are increasing, but this investment is expected to pay off in the long term as the company solidifies its position in the cloud computing space.
Introduction to Amazon’s AI Story
Artificial intelligence (AI) continues to be a major driver in the stock market, with AI stocks performing well in 2025 and starting 2026 strong. As Jensen Huang, CEO of Nvidia, predicts, the AI infrastructure market is expected to reach $4 trillion by 2030. Amazon, in particular, stands out as an underrated stock in the AI space. Despite its lackluster performance in 2025, with a 5% gain compared to the S&P 500’s 16% gain, Amazon has a strong position in the cloud computing market through its Amazon Web Services (AWS) segment. As the article notes, "Amazon’s AWS cloud computing service is the largest in the world by market share, and growing quickly."
Amazon’s Undervaluation
Amazon’s stock is currently cheaper than its peers, with a lower price-to-sales ratio. This is despite the company’s strong position in the cloud computing market and its growing AI capabilities. As the article states, "Amazon’s price-to-sales ratio is the lowest of the Magnificent Seven, indicating that it could be a tremendous bargain in 2026." The company’s e-commerce business, which generates enormous revenue, has low profit margins, but its AWS segment has a robust profit margin of 34.6%. This discrepancy in profit margins is a key factor in Amazon’s undervaluation.
The Role of E-commerce in Amazon’s Business
Amazon’s e-commerce business is a significant contributor to the company’s revenue, with $106.27 billion in North America revenue in the third quarter of 2025, and $40.9 billion from the international segment. However, the profit margins from e-commerce are paltry, at 4.5% from North America and 2.9% from the international segment. In contrast, AWS brought in $33 billion in revenue in the third quarter, up 20% from the previous year, and has a robust profit margin of 34.6%. As the article notes, "Amazon’s profit margins from e-commerce are paltry — just 4.5% from North America and 2.9% from the international segment, even though sales were up by 11% in North America and 14% from international."
Investing in AI Infrastructure
Amazon is investing heavily in building out its AI infrastructure, including constructing data centers and developing its Trainium custom AI chips. This investment is expected to pay off in the long term as the company solidifies its position in the cloud computing space. As the article states, "You have to spend money to make money. AI is a rapidly growing field — and it’s expensive. There’s no getting around it. But the rewards make the risk worthwhile, and Amazon already has a leading position in the cloud computing space." The company’s capital expenditures are increasing, with $115.90 billion in the third quarter of 2025, up from $53.97 billion in the second quarter of 2024. However, this investment is expected to reduce the company’s reliance on data center chips made by Nvidia and create a new revenue stream.
Reducing Reliance on Nvidia
Amazon’s effort to reduce its reliance on Nvidia’s data center chips is a significant development in the company’s AI strategy. The company unveiled its latest chips, the Trainium3, in December, which it claims can handle some AI tasks at lower prices. As the article notes, "Amazon claims that developers building AI products can save up to 40% by using Trainium3 chips instead of Nvidia’s chips." This move is expected to not only reduce Amazon’s capital expenditures but also create a new revenue stream.
Conclusion
In conclusion, Amazon’s stock is currently undervalued compared to its peers, with a lower price-to-sales ratio. The company’s AWS segment is a leading player in the cloud computing market, and its investment in AI infrastructure is expected to pay off in the long term. As the article states, "The AI space is going to continue to evolve this year. But Amazon has a dirt cheap valuation today and it’s making important moves to not only solidify its position in the cloud computing space, but also to reduce its reliance on Nvidia and create another revenue stream." With its strong position in the cloud computing market and its growing AI capabilities, Amazon is an underrated stock that could be a nice surprise for shareholders in 2026.
https://www.fool.com/investing/2026/01/07/this-might-be-the-most-underrated-artificial-intel/