Amazon Soars as AWS Growth Accelerates. Is It Too Late to Buy the Stock?

Amazon (NASDAQ: AMZN) shares soared after its cloud computing business, Amazon Web Services (AWS), posted its strongest revenue growth since 2022. Despite the business gains, the stock is up less than 15% year to date.

Let's take a closer look at the e-commerce behemoth's latest results and prospects to see if the stock's momentum can continue or if it's too late to buy the stock.

AWS leads the way

While Amazon is best known for its e-commerce operations, AWS is the company's largest segment by profitability. It's also its fastest-growing segment, and in Q3, its revenue jumped by 20% year over year to $33 billion, while its operating income rose 10% to $11.4 billion. That was ahead of the $32.4 billion revenue consensus, as compiled by StreetAccount.

Image source: Getty Images.

Amazon credited the growth to strong demand for artificial intelligence (AI) infrastructure, and noted that its AI solutions are resonating with customers. It called out the launch of Strands and AgentCore, which can help customers create and safely deploy AI agents, saying that AgentCore's developer kit has already been downloaded 1 million times.

On the chip front, its custom Trainium 2 AI chips are now fully subscribed, growing revenue 150% sequentially. Meanwhile, Project Rainier, which is one of the world's largest AI clusters built exclusively for Anthropic, is now using 500,000 of the chips, and is expected to hit 1 million chips by year-end. It plans to introduce Trainium 3 chips next year, and it said it is already seeing significant interest in them.

Similar to others in the space, Amazon increased its capital expenditure (capex) guidance, taking it from $118 billion to $125 billion. Meanwhile, that number will likely increase next year, as it invests heavily in AI data centers and robotics.

On the consumer side of its business, Amazon's North America sales climbed by 11% year over year to $106.3 billion, while international sales jumped 14%, or 10% in constant currencies, to $40.89 billion. Adjusted for one-time charges, its operating income for its North America segment soared 28% to $7.3 billion, while its international segment posted operating income (including charges) of $1.2 billion versus $1.3 billion a year ago.

Advertising continues to help drive growth, as its ad revenue jumped 24% to $17.7 billion, driven by its sponsored ad business. That was ahead of the $17.3 billion analyst consensus, as compiled by StreetAccount.

Third-party seller services revenue increased by 12% year over year to $42.5 billion, while online store revenue rose by 10% to $67.4 billion. Sales at physical stores, such as Whole Foods and Amazon Fresh, grew by 7% to $5.6 billion. Subscription services revenue, meanwhile, climbed 11% to $12.6 billion.

Overall, Amazon's revenue rose by 13% year over year to $180.2 billion, which came in above the $177.8 billion analyst consensus, as compiled by LSEG. Earnings per share climbed 36% to $1.95, which easily surpassed analyst expectations of $1.57.

Looking ahead, Amazon forecasts Q4 revenue to be between $206 billion and $213 billion, representing 10% to 13% growth. Meanwhile, it guided for operating income to be between $21 billion and $26 billion compared to $21.2 billion a year ago. Analysts were looking for operating income of $23.8 billion (StreetAccount) on revenue of $208 billion (LSEG).

Is it too late to buy the stock?

Despite the jump in its stock following its results, Amazon has been a laggard in what has been a hot market for growth stocks. However, its lagging stock price does not reflect the strength of its underlying operations. AWS growth is starting to accelerate now that Project Rainier is up and running, and the company will continue to ramp up capital expenditures to help capture the opportunity it is seeing in cloud computing.

Meanwhile, the quarter once again showed the strong operating leverage that Amazon is seeing in its e-commerce business. Between robots and AI helping it become more efficient and its fast-growing, high-gross-margin ad business, the company is seeing profitability grow much more quickly than revenue.

On the valuation front, the stock trades at a forward price-to-earnings ratio of about 33 times 2026 analyst estimates, which is around where it has traded the past few years. However, growth is starting to pick up, which means the stock still looks like it has solid upside potential.

As such, I don't think it is too late to buy the stock.

Geoffrey Seiler has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.