When investors think of Amazon (AMZN), chances are that e-commerce is the first thing that comes to mind. But Amazon is far more than that. While it still dominates the e-commerce market, it has grown into a tech giant, with a 31% market share in global cloud computing. It has also ventured into digital entertainment, healthcare, logistics, and even nuclear power. Amazon is one of the seven leading technology companies, named the “Magnificent 7” that have dominated the stock market in recent years. The Magnificent 7 group includes Tesla (TSLA), Meta Platforms (META), Apple (AAPL), Netflix (NFLX), Microsoft (MSFT), Nvidia (NVDA), and Alphabet (GOOGL).
Amazon stock soared 46.3% last year as the artificial intelligence (AI) frenzy continued. Its recent fourth-quarter results were outstanding, and long-term growth prospects remain promising. Yet, a conservative outlook for the first quarter of 2025 resulted in a modest drop in the stock price. So far this year, the stock is up only 1.7% compared to the overall market.
Let’s look at why Amazon could be the best Mag 7 stock to buy now.
Amazon Is Thriving Thanks to Its Diversified Business Model
With a market capitalization of $2.4 trillion, Amazon maintains its global dominance while exhibiting remarkable resilience and adaptability across its diverse business segments. Its cloud computing division Amazon Web Services (AWS) is now more profitable than its retail division. AWS generated $28.8 billion in Q4, resulting in a 10% increase in total net sales to $187.8 billion. Adjusted earnings per share increased 86% year-over-year to $1.86. In the Q4 earnings call, CFO Brian Olsavsky stated that AI investment is a short-term margin headwind and that AWS margins have fluctuated between mid-20% and high 30% over the last two years. However, this should improve over time.
For the entire year, AWS generated $107.6 billion, resulting in an 11% increase in total sales to $638 billion. Earnings for the full year increased by 83.8% to $5.33 per share. Amazon remains optimistic about AWS’s long-term potential, with generative AI serving as the primary growth driver. The company has introduced significant developments including custom AI chips, Amazon Bedrock, and Amazon Q, among others.
Amazon’s North America segment led the way, with $115.6 billion in revenue, a 10% increase thanks to competitive pricing, a diverse product offering, and speedy shipping. In its retail business, Prime membership has remained a key driver, providing same-day delivery, exclusive shopping events, and other benefits such as access to Prime Video. With about 1,000 generative AI applications currently in development, Amazon is actively pushing the limits of AI’s potential in retail.
Amazon’s advertising segment also continues to see stellar growth, doubling in size over the last four years. It has grown into a powerhouse, with revenue of $17.3 billion in the quarter, up 18% year-over-year. Amazon continues to integrate AI and analytics into its advertising ecosystem, contributing to its growth.
The company’s capital investments in Q4 totaled $26.3 billion, a rate it plans to maintain through 2025. The majority of these costs are allocated to expanding technology infrastructure, such as AWS, AI services, and investments in Amazon’s fulfillment and transportation networks. It is also investing in automation and robotics to shorten delivery times and save money. The company projects $100 billion in capex for 2025.
Despite these high expenses, it continues to generate significant free cash flow, totaling $36.2 billion. Its balance sheet showed $73.9 billion in cash, cash equivalents, and restricted cash. A debt-equity ratio of 0.18x indicates that Amazon manages its finances effectively, requiring less external capital.
For the first quarter of 2025, Amazon expects 5% to 9% growth in revenue, bringing the total to $151 billion to $155.5 billion. For the full year 2025, analysts anticipate Amazon’s revenue and earnings to increase by 9.6% and 14.3%. Revenue and earnings are projected to increase by 10.4% and 19.7% in 2026.
Is AMZN Stock a Buy Now?
Wall Street analysts remain optimistic about Amazon’s future. Overall, Amazon stock has earned a “Strong Buy” rating.
Following the release of Q4 results, Mizuho analyst James Lee reiterated his “Buy” rating and set a price target of $285. Lee believes that despite a downbeat outlook for the first quarter of 2025, Amazon’s “structural story remains unchanged.” Of the 50 analysts covering the stock, 45 have given it a “Strong Buy” rating, four recommend a “Moderate Buy,” and one has a “Hold” rating. The average target price is $269.04, indicating potential upside of 18.7% from its current price. Additionally, the highest target price of $306 suggests the stock could rise by as much as 35% over the next 12 months.
Amazon’s strategic AI initiatives have strengthened its position among the Mag 7 tech giants. Amazon stock, which trades at 35 times forward 2025 earnings, may appear overvalued. However, its investments in AI, cloud computing, and even nuclear energy projects position the company for continued growth in the coming years. However, given its steep P/E ratio, investors who can handle the short-term challenges and have a longer investment horizon may want to wait for a better entry point before investing in this hypergrowth stock.
