Amazon's 2026 Resurgence: Is the Underperformance Priced In?

Amazon's 2025 was a year of stark divergence. While the broader tech market surged, the stock posted a meager 5.8% gain, the weakest performance among the Magnificent Seven. This underperformance was a clear break from the group's average return of 27.5% and left it far behind the S&P 500's 17.5% climb. The story of the year wasn't a broad collapse, but a slowdown in its most critical engine.

The primary drag was the company's cloud computing business. After years of robust expansion, growth in this segment slowed notably last year. This contrasted sharply with the AI-driven surges powering peers like Alphabet and NVIDIA, where investor optimism focused on next-generation chip technology and data center demand. For Amazon, the cloud's momentum appeared to plateau, creating a tangible expectations gap in a market hungry for exponential growth narratives.

Yet, while the cloud engine sputtered, a second engine was accelerating. Amazon's advertising segment is now its fastest-growing business, leveraging the company's unique position at the intersection of high-intent user data and transactional power. In the first quarter of 2025, advertising revenue grew nearly 18% year-over-year, outpacing the company's overall revenue growth by a wide margin. This business is not just a side hustle; it's a high-margin, scalable force that could gradually improve Amazon's overall profitability.

The bottom line is a tale of two engines. The market's focus on AI and cloud growth left Amazon's more measured cloud trajectory behind, while its powerful advertising engine remained underappreciated in the valuation. This divergence in performance and perception is the setup for the potential resurgence. The question now is whether the market has already priced in this slowdown, leaving the stock vulnerable to a positive surprise if the advertising engine's momentum continues to accelerate.

The Valuation Gap: Priced for Perfection or Peril?

The market's deep skepticism is now baked into the price. Amazon's current price-to-earnings ratio is less than half of its five-year average, a stark signal that investors have priced in a prolonged period of disappointment. This isn't just a minor correction; it's a valuation gap that discounts further weakness, particularly in the cloud segment. The setup creates a clear asymmetry: the downside risk from continued cloud headwinds may be limited, while the upside from other, underappreciated engines is not fully reflected.

This pessimism is reflected in the stock's recent performance. In early 2026, shares have been the laggard among the Magnificent Seven, down about 0.3% year-to-date while the broader market has advanced. The market's focus has been on AWS growth, and the stock's underperformance suggests that any further disappointment there has already been met with a muted reaction. In other words, the stock is trading as if the worst is already priced in.

The asymmetry becomes apparent when looking beyond the cloud. While the market fixates on AWS, other segments are accelerating. Amazon's advertising business is its fastest-growing segment, and its e-commerce operations are becoming more efficient through automation. Morgan Stanley estimates that Amazon's robotics ambitions could generate between $2 billion and $4 billion of annual recurring savings by 2027. This isn't just a future possibility; it's a tangible lever for improving margins and profitability that the current valuation does not appear to reward.

The bottom line is one of expectation management. The market has priced Amazon for perfection in its cloud narrative, and the stock's depressed valuation suggests it has already absorbed the disappointment. The risk of further downside from cloud weakness is therefore limited by this already-low bar. The potential upside, however, comes from segments like advertising and robotics-driven efficiency, which are not yet fully valued. For investors, the asymmetry is clear: the stock offers a cushion against further cloud-related declines while leaving the door open for a resurgence driven by other engines.

The Hidden Engines: Robotics and Advertising

While the market fixates on cloud growth, Amazon is quietly building two powerful engines that could drive a 2026 resurgence. The first is its advertising business, which has evolved from a side hustle into a fast-growing strategic opportunity. In 2024, Amazon Ads generated $56 billion in revenue, an 18% increase. That momentum continued into 2025, with first-quarter ad revenue rising nearly 18% year-over-year while total company revenue grew just 9%. This gap highlights a business scaling faster than the core. More importantly, advertising carries a higher operating margin than Amazon's e-commerce or logistics operations, meaning its growth will gradually improve the company's overall profitability. With projections suggesting retail media ad revenue could exceed $79 billion by 2026, this is a high-margin engine that the current valuation does not appear to reward.

The second engine is a secular cost advantage in the works. Amazon's robotics ambitions are not just about automation; they are a direct path to boosting margins. Morgan Stanley estimates that Amazon's plan to replace hundreds of thousands of warehouse jobs with robots could deliver between $2 billion and $4 billion of annual recurring savings by 2027. This isn't a one-time cost cut. It's a structural improvement to the economics of its massive e-commerce operation, which is the bedrock of the company. The savings would come from reducing fulfillment costs per order by 20% to 40%, a direct hit to the company's largest expense. For perspective, Amazon's most advanced robotic warehouse has already reduced fulfillment costs by around 25%.

The market's consensus view, however, remains stubbornly focused on AWS growth. This creates a clear opportunity for a reassessment. The stock's depressed valuation suggests that any further disappointment in the cloud segment is already priced in. In contrast, the long-term benefits of advertising scale and robotics-driven efficiency are not yet reflected in the price. For investors, the setup is one of overlooked diversification. The company is building a more profitable, less labor-intensive future, and the market may be overlooking these secular advantages in its single-minded focus on cloud narratives.

Catalysts and Risks: What to Watch in 2026

The setup for Amazon's 2026 is one of clear expectations. The market has priced in a year of disappointment, particularly on the cloud front. The key question is whether the hidden engines of advertising and robotics can generate enough positive surprise to break the stock out of its range. Investors should watch a few critical metrics to gauge if the thesis holds or breaks.

The primary catalyst for a sustained move higher is a reversal in AWS growth trends. After a slowdown in 2025, any sign that cloud growth is stabilizing or accelerating would validate the current pessimistic sentiment and likely trigger a re-rating. Conversely, if AWS continues to disappoint, the stock's already-low valuation may provide limited downside, but it would also confirm the market's low expectations. For now, the stock's muted performance suggests that further cloud-related declines are already priced in.

On the upside, progress on two fronts will be key. First, watch for continued acceleration in advertising monetization. The segment's fast-growing strategic opportunity is already outpacing the company's overall revenue growth. Sustained high single-digit or better growth here would signal that Amazon's powerful retail media platform is gaining traction and contributing meaningfully to profitability. Second, monitor the deployment of robotics. The potential for $2 billion to $4 billion of annual recurring savings by 2027 is a long-term story, but tangible milestones in warehouse automation and fulfillment cost reduction will provide early evidence that this cost advantage is materializing.

The key risk is that the market's low expectations are justified. If AWS growth remains weak and the advertising and robotics stories fail to gain momentum, the stock could remain range-bound. The valuation gap offers a cushion, but without a catalyst to shift sentiment, Amazon may simply trade sideways as the broader market rallies around AI narratives. The asymmetry remains: the downside from cloud weakness is limited by the depressed price, while the upside from other engines is not yet reflected. For the resurgence to begin, investors need to see the hidden engines start to deliver.