Amazon (NDQ:AMZN) is a great company, but is it a genuine AI frontrunner?

Amazon (NDQ:AMZN) … the Everything Store. That was the title of journalist Brad Stone’s biography of the company as well as an accurate description of what the Magnificent Seven company does.

There’s little not to like about the company. The dominant market position in existing markets, the ability (the employee brains and capital) to go after new market opportunities and the loyalty of its customers. As Seattle’s Great White Shark advances through the early stages of its 4th decade, it isn’t necessarily the easiest time in its history. Its 12-month share price performance is a gain of 8%, fairly modest compared to the gains of years gone by.

But is it still Day One? For those who don’t know what we’re talking about with ‘Day One’ – Amazon republishes its 1997 investor letter at its annual results time and each letter concludes with ‘its still day one’ alluding to how Amazon has opportunities ahead of it. Jeff Bezos once said if it ever got to Day Two it’d be ‘stagnation, decline and death’. So again, is it still Day One?

Who is Amazon (NDQ:AMZN)?

The Everything Store essentially. It began as an online intermediary between book readers and wholesalers. Founder Jeff Bezos quit his job working for a New York hedge fund and moved across to Seattle to capitalise on the growth of the Internet.

As the years went on it expanded into more and more products and services, delivering them faster and faster to customers as well as expanding outside North America. We think two should be singled out.

First, its membership service Amazon Prime which boasts over 200 million members around the world (a figure twice as high as 5 years ago). There is so much you get for it – expedited delivery (without delivery fees), Prime Video, Prime Music and exclusive access to deals (particularly on Amazon’s annual Prime Day).

The second is Amazon Web Services (AWS), offering Cloud computing services to individuals, companies and governments. This division began as just another idea in 2006, but demand for it exploded during the pandemic. With everyone working from home, you don’t want all your data just sitting on one computer somewhere that is only accessible in person. It now accounts for over $100bn on annualised revenue and over two-thirds of operating income.

Bezos stood down in 2021 and was replaced by CEO Andy Jassy. He’s no newcomer, having been with the company since 1997 and playing a key role in the establishment of AWS.

A journey of growth (but not exclusively)

It has not always been easy for Amazon. The company survived the Dot com bust, yes, but it was a fight for profitability. You could argue it wouldn’t have survived had existing retailers done anything at all to compete (other than tell themselves Amazon was just ‘1, 2, 3, 4, 5%…’) before it was too late.

Not all of its expansion efforts have been overnight success stories, or even successes at all. Its efforts to enter physical stores have generated some fruit (but with only US$20bn in revenue annually, they’re an afterthought in the context of the entire group).

Yet even as it reached profitability, margins have remained wafer-thin, leaving investors concerned amidst the Tech Wreck. However, these concerns were quickly cast aside by investors. In 2025, it made US$716.9bn in sales, up 12% from 2024. AWS was a standout performer with US$128.7bn, up 20% – faster than any other segments. Turning to the bottom line, it made a US$77.7bn profit (or $7.17 per diluted share) compared to US$59.2bn a year earlier. The gross margin was 50.3% and the operating margin was 11.2%.

Over the past twelve months, Amazon has recorded a number of operational gains to boast of. Prime members are now receiving the fastest delivery speeds the company has ever achieved, with more than 7bn items delivered same‑day or overnight globally and over 4bn in the US alone, and more than 60% of Prime orders in major US cities arriving within hours.

AWS has rolled out another wave of generative‑AI capabilities, led by the new Amazon Nova foundation‑model family and deeper Bedrock adoption across enterprise workloads; and Amazon has continued to expand regional fulfilment, strengthen advertising performance and advance its custom‑silicon roadmap despite the drag from new tariff regimes.’

Amazon is excited about AI

Since taking the top job, Andy Jassy has continued Bezos’ tradition of writing shareholder letters which also include the first ever letter (from 1997) and ending it with the proclamation that ‘It remains Day One’.

Last year’s letter concluded with these words,’ We operate like the world’s largest startup in large part because of our culture of Why. We don’t always get everything right, and we learn and iterate like crazy’. ‘But we’re constantly choosing to prioritise customers, delivery, invention, ownership, speed, scrappiness, curiosity, and builder a company that outlasts us all. It remains day one’.

The most recent one opened with a parallel between the jobs he held before joining Amazon in 1997 and said it was not a straight line, and the same with AWS. Noting how at many times in history, even Amazon’s own executives didn’t know why it existed (even as late as 2014), he proclaimed,’ We try to anticipate what will make customers’ lives easier and better every day, and invent the next inflection. Historically, we’ve successfully done so in areas like Retail, Logistics, AWS, Ads, Kindle, Alexa, and Pharmacy. There are too many new efforts in flight to mention them all, but will mention a few‘.

AI was not mentioned until the second half of the letter, but was not neglected. Jassay declared that every customer experience would be reinvented by AI. ‘When [Thomas] Edison opened his first commercial power station in 1882, most people understood it as a better way to light a room. What they couldn’t see was that electricity would eventually reorganize every factory, home, and industry on Earth. AI may have comparable impact. The difference is that electricity took 40 years to get where it was going. AI appears to be moving ten times faster‘.

One of the key things Amazon is doing is building its own chips – the Trainium2 chips, that don’t just offer better performance but price-effective performance and this would complement the Nvidia chips also used. US$200bn in capex for 2026 alone was promised and that it’d be monetised in 2027-28. ‘We’re not going to be conservative in how we play this—we’re investing to be the meaningful leader, and our future business, operating income, and FCF will be much larger because of it,’ Jassay said.

‘This is the environment where Amazon does its best work. We’ve built a culture that thrives in constantly changing circumstances by being inventive, comfortable operating along multiple paths, revisiting first principles, and committing fully to the ideas that can meaningfully improve customers’ lives. As always, we’ll optimize for what matters most to customers and shareholders over the long term’.

Trump’s tariffs

Trump’s Tariffs were one of the few external forces that genuinely disrupted Amazon’s cost structure in 2025. The company didn’t quantify the exact dollar impact, but its FY25 commentary and the 2026 shareholder letter made it clear that there was an impact. The company has to shift procurement to more friendly countries and the company acknowledged that retail margins didn’t expand as quickly as logistics efficiency would have allowed.

What the future holds

Amazon did not give a numerical profitability range for the whole FY26. Instead, it guided that: operating income would increase year‑on‑year, free cash flow would strengthen and consolidated profitability would improve despite tariff pressure.

Nonetheless, it does provide quarterly guidance and has guided to US$194-199bn net sales and US$20-24bn operating income in Q2 – a figure impacted by unfavourable forex on one hand but also inflated by Prime Day in June. In Q1 it delivered US$181.5bn net sales (up 17%), US$23.9bn operating income and US$30.3bn net income. The latter was boosted by pre-tax gains from Anthropic. AWS growth was 28%, store unit growth was 15% and >1bn items were delivered same-day or overnight.

Let’s now look at consensus estimates. The revenue outlook is anchored around US$823.2bn for FY26, rising to more than US$1.06tn in FY27. Analysts expect mid‑teens growth in the near term, driven by continued strength in AWS, advertising and third‑party seller services. Retail is expected to grow at a steadier pace, but with better economics thanks to regional fulfilment and faster delivery speeds. The consensus view is that Amazon’s logistics model has reached a point where incremental efficiency gains translate directly into margin expansion.

Profitability expectations have risen sharply. Normalised EPS of US$8.70 for FY26 implies net profit of roughly US$93.6bn using 10,757.1m shares on issue. GAAP EPS of US$7.83 implies net profit of roughly US$84.3bn. Analysts expect FY27 normalised EPS of US$9.89, or about US$106.4bn in net profit as well as US$930.6bn revenue. The ‘breakthrough’ of the US$1tn revenue mark is expected in FY28 (specifically for $1.06tn). These numbers reflect confidence that AWS will continue accelerating, advertising will remain one of Amazon’s highest‑margin businesses, and retail margins will expand despite tariff pressure.

AWS is the centre of the consensus upgrade. Analysts expect double‑digit growth through 2026 and 2027, driven by Bedrock adoption, the Amazon Nova foundation‑model family and rising use of Trainium and Inferentia for AI inference. The view is that Amazon has moved from lagging in AI monetisation to competing effectively with Microsoft and Google.

Valuation expectations have stabilised. The average target price of US$312.91 implies roughly 27.5% upside from current levels. Analysts are  are pricing it on earnings power, not narrative. The consensus story is implicitly that Amazon’s next two years will be defined by margin expansion, AI monetisation and disciplined capital allocation.

How it compares to Walmart

Let’s turn our attention to Walmart, a company commonly compared to Amazon and arguably its best rival. After all Amazon’s founder who got richest from selling stuff in the 21st century, while Walmart founded by the man who got richest from selling stuff in the 20th century. Walmart lost Round 1 to Amazon, but it is not out of the game yet.

Walmart remains the world’s largest company by revenue and it is challenging Amazon in the eCommerce field. Its eCommerce sales are 13% of its sales and they have continued to grow over 10% post-pandemic even though many other eCommerce company revenues fell.

Walmart has several advantages over Amazon including its logistics and store networks, its cash reserves, the fact that it is a ‘one stop shop’ as well as the mix of goods, both essentials that are purchased regularly and bigger ticket items purchased less frequently but are higher margin for the company.

Another way in which Walmart is competing with Amazon is with its Walmart+ membership program. For US$98 per annum (or $13 monthly), you get benefits including free delivery, early access to Black Friday sales, fuel savings and a Paramount+ Essential Plan. Yet another innovation Walmart is working on is having EV chargers at its stores. It already has 1,300 fast-charging stations and plans to keep expanding the network.

At the same time, the one thing Amazon has that Walmart doesn’t is AWS and that will be a key driver of growth going forward. It is easy to overlook that Amazon uses AWS for its own purposes, and that is very convenient for it. Obviously the revenue comes in from companies that opt to use it, but the operational advantage cannot be overlooked.

Conclusion

Amazon is one of the best companies out there and has a bright future ahead of it. However, those who think it is the growth of eCommerce aren’t looking hard enough at the company. The catalyst for growth is its profitability, that is only expected to get bigger, and growth from AWS that shows no signs of slowing down. Trump’s tariffs may have an impact, but unlikely to the extent that growth would slow enough for the company’s reputation to be hit (at least in the long-run).