What will it take for Amazon's stock to finally take off?

Amazon's stock has underperformed compared to its peers in the 'Magnificent Seven,' gaining less than 6% in 2025, while the group has risen over 22%. Key growth areas include Amazon Web Services (AWS), which needs to overcome capacity issues and improve AI capabilities. Analysts suggest that partnerships and new initiatives could boost AWS growth to 23% by 2026. Additionally, Amazon's advertising business is growing, and a strong holiday season is crucial for its e-commerce segment. Overall, improvements in these areas are essential for Amazon's stock to gain momentum.

By Christine Ji Amazon's stock trailed its 'Magnificent Seven' counterparts in 2025. Growth in the company's cloud-computing, advertising and retail segments could spark a turnaround. Despite Amazon Web Services revenue reaccelerating to 20% growth last quarter, investors are still waiting for proof that the cloud unit has fully overcome its capacity bottlenecks. Amazon.com is ending the year as the worst-performing member of the "Magnificent Seven," as the stock has gained less than 6% in 2025 while the ETF tracking the group has rallied more than 22%. The underperformance isn't unique to this year. Since the end of 2020, Amazon's (AMZN) stock has underperformed the S&P 500 index SPX, rising 42.5% through Monday compared with the broader market's 83.9% advance. The Roundhill Magnificent Seven ETF MAGS has soared 172% since inception on April 11, 2023. If Amazon's stock wants to break free of this cycle, the company must show improvement in a few key areas. Amazon developed a reputation as an artificial-intelligence laggard due to what investors perceived as lackluster growth in its cloud-computing business. Even a third-quarter revenue reacceleration to 20% growth wasn't enough to shake the narrative that Amazon Web Services is falling behind Alphabet's (GOOGL) (GOOG) Google Cloud and Microsoft's (MSFT) Azure. AWS has become the most influential driver of Amazon's share price. Growth in the segment was impeded earlier in 2025 because the company couldn't fulfill soaring AI demand fast enough. Although management has announced initiatives to double capacity by 2027, investors will only be convinced by further revenue growth. In a note earlier this month, Jefferies analyst Brent Thill wrote that Amazon still "needs to do better at ramping AI capacity," adding that some are advocating Amazon to utilize third-party infrastructure partnerships to speed up the process. Amazon has added 3.8 gigawatts of capacity in the last 12 months and plans to add another gigawatt in the fourth quarter. Amazon's cloud business did score wins this year: it brought its data-center initiative Project Rainier online, secured a $38 billion deal with OpenAI and released its latest Trainium3 custom chip. Amazon is also reportedly in talks to invest $10 billion into OpenAI and provide access to its Trainium chips. Read more: Is a new OpenAI deal what Amazon's stock needs to finally come alive? A potential deal with OpenAI "strengthens AWS's positioning in AI infrastructure and serves as a reminder that AWS should not be underestimated in the ongoing infrastructure battles," Austin Porta, equities analyst at Mariner Wealth Advisors, told MarketWatch over email. Such a deal would also represent a major victory for Amazon's custom silicon. Amazon is already the primary cloud provider for Anthropic, backing the startup with an $8 billion investment and building Project Rainier specifically to train its models. If OpenAI adopts Trainium chips as well, Porta noted, it would be a significant vote of confidence in Amazon's ability to lower compute costs for the industry's biggest players. JPMorgan analyst Doug Anmuth wrote in a December note that AWS growth could reach 23% or higher by the end of 2026 thanks to its custom chips, Amazon Bedrock, which powers generative AI, and new partnerships. Read on: Why Alphabet and Amazon could be two of the best AI stocks next year While AWS remains in the spotlight, investors will also be keeping an eye on Amazon's high-margin advertising business, which has emerged as a growth driver in recent years. TD Cowen's John Blackledge pointed to the growing popularity of Prime Video as a catalyst for the ads business. Amazon's video platform has caught up to Netflix (NFLX) in terms of household penetration, according to the firm's proprietary data. Blackledge estimates that Amazon ads could comprise 35% of the company's operating income in 2025. Amazon will also need to show a strong holiday season to boost its e-commerce business, especially among general concerns of inflation weighing on the consumer, Melissa Otto, head of research at S&P Global Visible Alpha, told MarketWatch recently. HSBC analyst Paul Rossington wrote in a note earlier this month that he anticipates Amazon will have taken market share during this year's Black Friday and Cyber Monday promotional cycle. On the third-quarter earnings call, Amazon shared that its Everyday Essentials category - which features household necessities, including groceries - grew twice as fast as other U.S. store categories. The company has invested heavily into same- and next-day delivery options as well as cost-saving logistics, which could improve margins for the retail business and improve investor sentiment. Amazon's increased focus on grocery delivery is a promising opportunity to boost the ecommerce business. Don't miss: Amazon's stock is this analyst's 'best idea' for these 3 reasons -Christine Ji This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 12-30-25 0732ET