Amazon (AMZN) Stock: A Strategic Buy as AI and AWS Momentum Accelerate in Q2 and Beyond

In Q2 2025, Amazon (AMZN) is poised to deliver a compelling investment opportunity for those willing to capitalize on its dual-engine growth model: AI-driven innovation and the dominance of Amazon Web Services (AWS). With AWS projected to grow revenue by 17.4% year-over-year and e-commerce resilience amid macroeconomic headwinds, Amazon's stock is trading at a valuation that appears to underprice its long-term potential. This article argues why AMZN is a strategic buy, leveraging its high-margin cloud business, AI-led expansion, and undervalued fundamentals.

AWS: The High-Margin Engine Fueling Amazon's Future

Amazon Web Services (AWS) remains the crown jewel of Amazon's business, contributing 19% of total revenue in Q2 2025. In Q1 2025, AWS achieved a record operating margin of 39.5% on $29.3 billion in revenue, a 17% YoY increase. Analysts project this momentum to continue, with AWS expected to outpace Amazon's overall revenue growth of 7–11% in Q2. The cloud segment's strength is underpinned by its leadership in generative AI, with AWS Bedrock integrating cutting-edge models like Anthropic's Claude 3.7 Sonnet and Meta's Llama 4. These tools are attracting enterprise clients seeking to deploy AI for automation, data analytics, and customer engagement, creating a flywheel effect of demand and ecosystem lock-in.

AWS's 29% global cloud market share, though slightly lower than its 2022 peak, remains formidable due to its comprehensive service portfolio and hybrid cloud solutions like AWS Outposts. The segment's backlog grew 20% YoY to $189 billion in Q1 2025, signaling robust future revenue visibility. Despite competitive pressures from Microsoft Azure and Google Cloud, AWS's sticky ecosystem—combining infrastructure, AI tools, and developer platforms—creates high switching costs for clients.

E-Commerce Resilience: Navigating Uncertainty with Prime and Pricing Power

Amazon's e-commerce business, which accounts for one-third of total revenue, is expected to grow 6% YoY in Q2 2025. While this is slower than AWS's growth, it reflects resilience in a challenging macroeconomic environment. The company's Prime membership model, with 250 million global subscribers, continues to drive loyalty and cross-selling. Amazon's investments in logistics automation, including the Vulcan robot and drone delivery, are reducing costs while improving delivery times, a critical differentiator in competitive markets.

Trade policy uncertainties and potential tariffs pose risks, but Amazon's value pricing strategy and scale allow it to absorb incremental costs without sacrificing margins. The company's operating margin is projected to improve to 10.6% in Q2 2025, up from 9.9% in Q2 2024, highlighting its ability to optimize expenses.

Undervalued Valuation: A Contrarian Play on AI and Cloud Growth

Amazon's stock is currently trading at a forward P/E ratio of 33.48, significantly below its 10-year average of 16.5 times and lower than Microsoft's 30 times forward P/E. This valuation discount appears to underprice the company's AI and cloud growth potential, particularly as AWS's operating margins approach 40% and AI workloads grow by over 100% annually.

The price-to-book (P/BV) ratio of 6.59 and an enterprise value-to-EBITDA (EV/EBITDA) ratio of 18.49 further suggest that Amazon is undervalued relative to its asset base and operational efficiency. Analysts, including those from Bank of America and Lakehouse Capital, have raised price targets to $251.34 on average, implying a 10.5% upside from current levels. With 69 out of 73 analysts assigning “buy” or “strong buy” ratings, the consensus is bullish on Amazon's ability to navigate near-term challenges while capitalizing on long-term growth drivers.

Investment Thesis: Strategic Buy for Long-Term Growth

Amazon's strategic positioning in AI and cloud computing, combined with its undervalued valuation, makes it an attractive buy for investors seeking exposure to the next phase of the tech boom. Key catalysts include:
1. AWS Margin Expansion: Continued AI integration and cost discipline could push operating margins above 40%, driving earnings growth.
2. AI-Driven E-Commerce Synergies: Amazon's use of AI in logistics, advertising, and customer experience will enhance margins and retention.
3. Regulatory and Competitive Resilience: Despite regulatory scrutiny (e.g., UK CMA probe), AWS's ecosystem advantages and first-mover status in AI will sustain its leadership.

Conclusion: Buy for AI and Cloud-Driven Outperformance

Amazon's Q2 2025 performance is a testament to its ability to innovate and adapt in a rapidly evolving market. With AWS as a high-margin growth engine, e-commerce resilience, and a valuation that discounts its AI-led future, AMZN offers a compelling risk-reward profile. Investors who act now can position themselves to benefit from the compounding effects of AWS's AI-driven expansion and Amazon's enduring market dominance.

Investment Recommendation: Buy Amazon (AMZN) at current levels, with a target of $251.34 and a stop-loss at $213.40. The stock's technical and fundamental case aligns with long-term growth in AI and cloud computing, making it a strategic buy for 2025 and beyond.