Amazon Stock Gains Steam, Analysts See 44% Upside Potential

After a lackluster performance in the first half of the year, Amazon's (AMZN) stock has regained momentum. Shares have rallied 20% since the company reported its second-quarter earnings on July 30, driven by stronger-than-expected financial results, accelerating cloud growth, and renewed investor confidence in Amazon's long-term artificial intelligence (AI) strategy.

While concerns over Amazon's aggressive spending on AI infrastructure had weighed on the stock for months, accelerating cloud and AI revenue has helped shift investor sentiment.

Amazon’s Cloud and AI Investments Are Beginning to Pay Off

Amazon's latest results suggest its multiyear investments in cloud infrastructure and AI are moving into a stronger monetization phase. While consolidated revenue rose 20% year-over-year (YoY) to $200.6 billion, operating income expanded at a faster rate, up 43%, indicating improving operating leverage as high-margin cloud services scale.

AWS remains the key growth engine, delivering 36.7% YoY revenue growth. Notably, Q2 was its fifth consecutive quarter of acceleration, and AMZN added $4.6 billion in sequential revenue. AWS has hit $169 billion in annualized revenue run rate, and its rapidly expanding $496 billion backlog indicates solid growth ahead.

Importantly, Amazon's AI opportunity remains significant. Both its custom AI chips and broader AI business have exceeded $25 billion in annualized revenue, growing at triple-digit rates. At the same time, management highlighted that inference, post-training, and AI agent workloads increasingly rely on general-purpose CPUs, creating a favorable environment for Amazon's Graviton processors.

The adoption of Graviton chips remains high, and revenue commitments have nearly tripled sequentially. In addition, adoption of the latest Graviton processor is outpacing that of previous generations. This suggests Amazon is monetizing both AI-specific workloads and conventional cloud computing, broadening its competitive advantage.

Advertising Remains a High-Margin Growth Catalyst

Amazon's advertising business continues to emerge as another important contributor to growth and profitability. Advertising revenue increased 26% YoY to $19.8 billion, supported primarily by continued strength in Sponsored Products.

The company is also integrating advertising into newer AI-powered shopping experiences, which augurs well for growth. Beyond retail search advertising, Amazon also continues to see healthy engagement across Prime Video advertising and live sports, providing additional monetization opportunities as its streaming ecosystem expands.

Heavy AI Spending No Longer Appears to Be a Major Concern

One of the biggest overhangs on Amazon's stock has been its rapidly rising capital expenditure. Management now expects approximately $220 billion in cash capital expenditures during 2026, up from its previous estimate of around $200 billion, largely due to higher memory costs required for AI infrastructure.

While higher capital spending would raise concerns about profitability, management noted that AI-related margins and investment returns are tracking slightly ahead of what Amazon experienced during the early build-out of AWS, implying that the company's AI investments are monetizing more efficiently. Also, Amazon expects its return on invested capital (ROIC) to improve despite maintaining elevated AI spending.

The reassurance has eased investor concerns that had weighed on the stock over recent quarters.

Wall Street Sees 44% Upside for AMZN Stock

Following the strong earnings report, Wall Street remains bullish on AMZN stock. Analysts continue to maintain a “Strong Buy” consensus rating on the stock. The average price target of $322.73 implies roughly 16% upside from current levels, while the highest target of $400 suggests approximately 44% upside.

Bottom Line

Amazon’s second-quarter results strengthen the company's position as one of the biggest beneficiaries of the ongoing AI investment cycle.

AWS continues to deliver accelerating growth, Amazon's AI businesses are scaling rapidly, advertising remains a high-margin growth engine, and management has reassured investors that elevated capital spending should translate into improving long-term returns.

Although near-term capital expenditures remain substantial, Amazon's AI investments are beginning to generate tangible results. If AWS maintains its current growth trajectory while Ads and AI offerings continue to mature, Amazon could continue to deliver strong earnings growth, lifting its share price higher.