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Lately, Wall Street has been very optimistic about Amazon (AMZN 1.91%). Of the 73 analysts covering the stock, 59 have "Buy" ratings, 11 have "Overweight" ratings, and three say "Hold." Here's why the company is also one of my favorite picks. AWS growth trends Amazon's cloud computing business, Amazon Web Services (AWS), is accelerating its growth, with revenues rising 20.2% year-over-year to $33 billion in Q3 of fiscal 2025. AWS has reached an annualized run rate of $132 billion and had a backlog of $200 billion at the end of the third quarter. However, the actual backlog in early November 2025 is much higher, not including the unannounced new deals from October 2025. This deal volume exceeded the third-quarter total. AWS has also added 3.8 gigawatts of data center capacity in the past 12 months and plans to double it by 2027. Increasing deal volume and rising capacity highlight AWS' impressive multi-year revenue visibility. AWS' artificial intelligence (AI) services, such as SageMaker and Bedrock, are also driving rapid growth. Bedrock provides a broad choice of foundational models and high price-performance for running inference (real-time deployment of AI models) workloads. The company's proprietary AI chip, Trainium 2, is experiencing solid adoption and has already become a multibillion-dollar business. The global agentic AI market is estimated to grow from $13.8 billion in 2025 to $140.8 billion by 2032. Amazon is investing heavily to position AWS as a leading player in agentic AI. The company has introduced tools such as Strands to enable enterprises to build their own AI agents and Agentcore, a set of infrastructure building blocks that enable enterprises to deploy their agents in a production environment in a secure and scalable manner. Advertising and e-commerce momentum Retail advertising business is also growing at a rapid clip, with revenues growing 22% year over year to $17.7 billion in the third quarter. The company's broad portfolio of complete photo advertising offerings, demand-side advertising platform, and partnerships with streaming players such as Roku and Netflix are playing a key role in driving adoption. In e-commerce, a growing focus on same-day delivery of perishable groceries and increased penetration in rural markets could be a competitive edge in future quarters. Financials and valuation Amazon's revenues were up 13% year over year to $180.2 billion, while operating income was $17.4 billion, on par with that in the year-ago quarter. Management has invested a capex of almost $89.9 billion by October 2025, with a significant portion allocated to support demand for AI and core cloud computing services on AWS, in custom hardware such as Trainium chips, and in technology infrastructure to support its North America and international businesses. The company is guiding for capex of $125 billion in fiscal 2025 and even higher in fiscal 2026. Despite these substantial AI capital expenditures, its trailing 12-month free cash flow was a solid $14.8 billion. Amazon is trading at almost 31.4 times forward earnings, which may seem rich. Yet, the valuation is justified for a company with a rapidly growing cloud and advertising business, as well as increasing investments in several AI-powered opportunities. The high valuation also shows that investors and analysts are confident in its future growth trajectory. Hence, it makes sense to make at least a small stake in this stock now.
