Here's Why Amazon Is a Brilliant Buy Now (Hint: It's Not E-Commerce)

Keithen Drury, The Motley Fool

Sun, May 18, 2025, 5:15 AM 5 min read

Key Points

AWS makes up the majority of Amazon's profits.
Cloud computing is expected to undergo large growth over the next few years.
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Amazon (NASDAQ: AMZN) was one of the biggest winners of the e-commerce revolution, and its platform is by far the most used option in this realm. On the investment side, it's what most users might think about Amazon. However, there are far better reasons to own the stock than that, as there isn't much growth in its e-commerce business anymore.

Furthermore, my primary reason to invest in Amazon isn't affected by tariffs, which just adds to an ever-growing list of reasons why Amazon should be viewed as a cloud computing company, not an e-commerce company. Amazon Web Services (AWS) is my primary reason for investing in Amazon. When you dig down a bit deeper, it's clear why this division is so exciting.

Image of data center server racks. — Image source: Getty Images.

AWS plays a major role in Amazon's profit picture

With Amazon maturing as a company, investors are starting to care less about growth and more about profits. However, AWS delivers a one-two punch of growth and profits. During Q1, Amazon's North American segment (including divisions tied to e-commerce) saw its sales rise 8% year over year but only delivered a 6.3% operating margin. AWS fared far better, with revenue rising 17% year over year and delivering a 39% operating margin.

So, AWS has much better margins and is growing faster than its commerce business, but how does it stack up overall? After all, North American sales accounted for 60% of all revenue in Q1, while AWS only accounted for 19%.

Because of AWS's superior operating margin, AWS accounted for 63% of Amazon's total operating profits in Q1. That's a huge amount for a much smaller segment, but it's clear that as AWS goes, so will Amazon as a company. With AWS steering Amazon, it's clear that investors should be more concerned about how this business segment is doing rather than the commerce divisions (although they are still important).

Fortunately for investors, cloud computing is going through a massive boom.

Cloud computing has two growth trends pushing the industry higher

AWS is the market share leader in cloud computing, benefiting from its position as the first major player in the space. Two trends are contributing to the growth that AWS is experiencing: AI workloads and the general migration to the cloud.

Many businesses still have on-site computing, networking, and storage. These tasks can be done in the cloud and can be cost-effective to host online because companies don't have to maintain expensive computing infrastructure. Essentially, if you have an internet connection, you can access all the information hosted on the cloud. This migration is still ongoing and may last over a decade.

AI is the latest trend in the cloud computing space and is currently a massive boost for AWS. Many companies want to train proprietary AI models but don't have the computing power to do so. Instead of buying an expensive server that may be underutilized after the initial training is done, they are electing to rent the computing power through a provider like AWS. As a result, AWS is another winner of the AI arms race.

Grand View Research found that the size of the cloud computing market was around $750 billion in 2024. It's expected to massively increase over the next few years to $2.3 trillion by 2030. That growth includes far more than cloud computing infrastructure providers like AWS, but it gives investors an idea of the trendline that cloud computing is on.

AWS is the driving factor behind Amazon's stock, and the industry is expected to experience phenomenal growth over the next few years. Because AWS doesn't make up most of Amazon's revenue, Amazon's revenue growth metric is nearly useless; instead, investors should focus on operating profit growth, which has far outpaced revenue growth recently.

AMZN Operating Revenue (Quarterly YoY Growth) Chart — AMZN Operating Revenue (Quarterly YoY Growth) data by YCharts

Although operating income growth has slowed a bit over the past few quarters, it's still in the double-digit realm, which gives me confidence that Amazon can deliver strong stock performance in the future. As a result, I think it's a great stock to scoop up now.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Here's Why Amazon Is a Brilliant Buy Now (Hint: It's Not E-Commerce) was originally published by The Motley Fool

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