Amazon's 3-Year Growth Trajectory: Assessing the AI Infrastructure Bet

The core investment question for Amazon is a stark one: why is the stock languishing while the business accelerates? In 2025, Amazon delivered a 5.8% gain, making it the worst-performing member of the Magnificent Seven. This underperformance is especially puzzling given the company's operational momentum. Its cloud unit, AWS, is accelerating, and advertising is booming past a $60 billion annualized run rate. Yet the stock trades around $231, down from its November high, creating a clear disconnect between fundamentals and price.

The primary reason for this disconnect is the sheer scale of Amazon's investment. The company is plowing $125 billion into capital expenditures in 2025, a massive bet on AI infrastructure and capacity. This spending crushes near-term earnings through depreciation, making the stock's forward P/E of 29x look expensive relative to its current profit growth. The market is pricing in the cost of this buildout, not the future payoff.

Analysts see the other side of the equation. The consensus average price target implies 28% upside from current levels, with some targets reaching $360. Their bet is that the current earnings drag is temporary. They project AWS will sustain 30%+ revenue growth in 2026, and the company's custom silicon edge could drive a massive profit expansion. The math suggests that once this $125 billion in capacity is online, it will generate billions in new revenue and operating income, accelerating earnings power in 2027 and beyond.

The bottom line is a classic growth-versus-value tension. Amazon's stock performance reflects the market's focus on near-term earnings pressure from its own aggressive investment. The analyst view, however, is that the company is sacrificing today's profits for a dominant position in the next computing cycle. For investors, the question is whether to accept the current premium valuation for a chance at that future acceleration, or to wait for the earnings to catch up to the story.

The Growth Engines: AWS and Advertising as Scalable Profit Drivers

While Amazon's stock has underperformed, its two core growth engines are accelerating with a clarity that suggests the market is overlooking a powerful, scalable profit story. The company is investing heavily in infrastructure, and the returns are beginning to materialize in two distinct, high-margin segments: cloud computing and advertising.

The primary engine is Amazon Web Services. After a period of capacity constraints, AWS is now executing a massive buildout to meet soaring AI demand. The company has already added 3.8 gigawatts of power capacity in the past year and plans to double its total power capacity from 2022 levels by 2027. This aggressive expansion is translating directly into revenue growth, with the unit projected to achieve 30%+ revenue growth in 2026. The scalability math is compelling: each gigawatt of added capacity generates approximately $3 billion in annual revenue. With a $200 billion cloud backlog in performance obligations, the pipeline is already filled. The key catalyst is the rollout of custom AI chips like Trainium3, which promise to undercut competitors on cost and performance, making AWS the preferred infrastructure for large-scale AI workloads.

The second engine is advertising, which has evolved into a dominant, high-margin business. The segment is growing at a blistering pace, with a 24% year-over-year increase in Q3 2025 and an annualized run rate of $70+ billion. This surpasses the scale of major competitors like YouTube. The growth is projected to continue at a 20%+ rate in 2026, adding another $14 billion in revenue. What makes this engine particularly powerful is its profitability. Advertising operates at 50%+ operating margins, a stark contrast to the thin margins of the retail business. Every dollar of ad revenue is worth 7-10 times more in operating income than a dollar of retail sales, providing a massive leverage point for the overall company.

Together, these engines create a powerful growth and profit profile. AWS is scaling its infrastructure to capture the AI compute wave, while advertising leverages Amazon's unparalleled customer data and platform reach to monetize attention at premium margins. The company's massive capital expenditure-$125 billion in 2025-is a bet that these scalable drivers will generate outsized returns in the coming years. For investors, the setup is clear: the market is focused on near-term earnings dilution from this investment, but the real story is the multi-year ramp of two businesses that are both expanding their market share and their profitability.

The 3-Year Financial Outlook: From Capex to Cash Flow

Amazon's financial trajectory over the next three years hinges on a simple but massive bet: converting today's record capital expenditure into tomorrow's earnings acceleration. The company is investing heavily to secure its dominance, and the payoff is expected to materialize in 2027 and beyond.

The near-term path is one of deliberate growth at the expense of near-term profits. For 2026, the consensus projects revenue of approximately $790 billion, representing an 11% increase from the prior year. Earnings per share are forecast to rise to $7.86, a similar 11% jump. This tepid EPS growth is a direct result of the company's aggressive investment cycle. Wall Street notes that Amazon's plowing $125 billion into CapEx in 2025, with increases expected in 2026, and the resulting depreciation expenses are crushing near-term earnings. The growth engine for this year is clear: AWS is projected to deliver 30%+ revenue growth, while advertising, with an annualized run rate surpassing $60 billion, continues its rapid expansion.

The real acceleration is scheduled for 2027. The massive capacity buildout in AWS, which is doubling power capacity from 2022 levels by 2027, is designed to drive significant earnings leverage. Analysts estimate that each gigawatt of added capacity generates about $3 billion in annual revenue. If AWS adds another 4-5 gigawatts in 2026, that incremental capacity could generate $12-15 billion in new revenue next year. With AWS operating at roughly 34% margins, this would translate to a multi-billion dollar boost to operating income. This is the core of the investment thesis: the 2025-2026 capital investments are a prepayment for the high-margin growth of 2027. The company's financials are expected to show a clear inflection, with revenue projected to reach $950 billion as the returns on that capital begin to flow through.

This growth is built on a stable, albeit contested, foundation. Amazon's dominant position in U.S. e-commerce provides a massive, recurring revenue base. The company holds a verified 37.6% share of all U.S. retail e-commerce spending, a figure that, while slightly down from its pandemic peak, still represents a commanding lead. However, this moat is under pressure. The company faces intensifying competition from Walmart, Temu, and Shein, which are aggressively capturing share in specific categories. The key for Amazon is to defend this core while its high-margin segments-AWS and advertising-scale to offset any e-commerce headwinds.

The bottom line is a story of patience and scale. The 2026 numbers reflect the cost of building for the future, with growth and earnings expanding at a modest pace. The 2027 outlook, however, is where the model's scalability becomes undeniable. If the AWS capacity buildout delivers as projected, the company's earnings power could accelerate dramatically, turning its massive capital investment into a powerful engine for shareholder returns.

The Capital Intensity Trap and Path to Profitability

Amazon's growth engine is now running on a capital treadmill. The company's total capital spending surged past $100 billion in 2025, with its cloud unit, AWS, absorbing the lion's share. This isn't a one-time spike but a multi-year build-out, as executives have signaled that capital expenditures will remain elevated in 2026. The target is clear: to dominate the AI-driven cloud infrastructure race. AWS is leading the charge, with plans to invest up to $50 billion for U.S. government AI workloads and a separate $15 billion commitment for commercial data centers in Indiana. This scale of investment is the new normal for Amazon's growth strategy.

Financing this massive expansion is a critical element of the story. Amazon is turning to debt markets to fund the build-out, having returned to them in 2025 with a $12 billion bond offering. This move provides the necessary liquidity but adds a layer of financial leverage to an already capital-intensive model. The company is essentially betting that the future revenue from its new AI and cloud capacity will far outweigh the current cost of capital and the massive depreciation expenses that will follow.

This brings us to the timeline for earnings acceleration. The market's patience is being tested. The earnings thesis hinges on a future window, likely 2027-2028, when this new AWS capacity is fully deployed and the associated depreciation expenses stabilize. Until then, the financial statements will reflect the heavy upfront costs of construction and equipment, pressuring margins even as revenue grows. The path is clear but long: years of elevated spending now for a potential profit surge later.

The bottom line is a classic capital intensity trap. Amazon is making the investments necessary to defend and expand its AWS moat, but the payoff is deferred. For investors, the question is whether the market can look past the next two years of high capex and low margin growth to see the durable competitive advantage being built. The answer will depend on execution, demand, and the company's ability to manage its debt load through the build-out.

Catalysts, Risks, and What to Watch

For Amazon to break its multi-year underperformance, investors need to see concrete validation that its massive investments are translating into growth and market share. The near-term framework is clear: watch for AWS to sustain its cloud momentum and for its advertising business to prove its durability, while monitoring the execution of its sprawling AI capital plan.

The primary catalyst for a stock re-rating is evidence that AWS is overcoming its capacity bottlenecks and that advertising margins are expanding. The cloud unit's growth narrative hinges on this. While AWS revenue reaccelerated to 20% growth last quarter, that was still below the 30%+ pace many investors demand to shake the "AI laggard" label. The key metric to watch is whether this growth can be sustained into 2026. Management has set a target to double capacity by 2027, but the proof point is revenue. A clear signal would be AWS hitting 23% or higher growth by the end of next year, as some analysts project, driven by new partnerships and custom chips.

A major near-term event is the company's report on the impact of its $50 billion government AI investment. This commitment, set to break ground in 2026, aims to add nearly 1.3 gigawatts of compute capacity across secure government regions. The watchpoint is twofold: first, the execution timeline for these new data centers, and second, the commercial and strategic wins that follow. This deal is a direct vote of confidence in AWS's infrastructure and could lock in long-term, high-margin government contracts. Any update on progress or new contract announcements will be critical.

For the advertising business, the catalyst is its ability to maintain its high-margin trajectory. This segment has emerged as a key growth driver, with estimates suggesting it could comprise 35% of the company's operating income in 2025. The primary risk here is a slowdown in growth, which would undermine the diversification thesis. Investors should watch for continued strength in Prime Video's ad-supported model and overall ad revenue trends.

The key risks to this growth thesis are execution, competition, and margin pressure. Execution delays on the massive capacity builds are a tangible threat. The company is adding 3.8 gigawatts of capacity in the last 12 months and plans another gigawatt in Q4, but some analysts argue it needs to do better at ramping AI capacity. Intense competition from Microsoft Azure and Google Cloud could compress margins as all players race to build out infrastructure. This is already a concern, with Amazon's total capital spending reaching more than $100 billion in 2025, a level that raises questions about long-term returns. Finally, the potential for advertising growth to slow remains a vulnerability, as it is a high-margin business that needs to keep accelerating to offset any cloud margin pressure.

The bottom line is that Amazon's turnaround requires a multi-pronged validation. Investors must see AWS revenue sustain a strong growth rate, get updates on the government AI investment's progress, and observe whether advertising margins continue to expand. Failure on any of these fronts could prolong the stock's underperformance.