Is Amazon Stock Undervalued Amid 2025's Disappointing Performance?

Amazon's stock has faced headwinds in 2025, with its share price lagging behind broader market benchmarks despite robust revenue growth. Skeptics argue the stock is overvalued, while bulls point to its dominant business segments and forward-looking potential. To assess whether Amazon (AMZN) is undervalued, we must dissect its profit-driven segments-North America, International, and AWS-and evaluate forward-looking valuation metrics against analyst forecasts.

Segmental Profitability: AWS Drives Growth, North America Faces Headwinds

Amazon's third-quarter 2025 results highlight stark contrasts across its business units. The North America segment, which includes retail and logistics, reported $106.3 billion in sales-a 11% year-over-year increase. However, operating income of $4.8 billion was heavily impacted by a $2.5 billion legal settlement with the Federal Trade Commission. Excluding this charge, operating income would have reached $7.3 billion, underscoring the segment's underlying resilience according to earnings data.

The International segment posted $40.9 billion in sales, up 14% year-over-year, with operating income of $1.2 billion according to Q3 results. Analysts project this segment's revenue to grow to $310 billion in FY 2026 from $277 billion in FY 2025, driven by a weaker U.S. dollar and cost efficiencies as reported by market intelligence. While margins remain modest (3% operating margin in FY 2025), long-term improvements to 5.3% by FY 2027 are anticipated based on research analysis.

The standout performer remains AWS, Amazon's cloud computing division. AWS revenue surged 20% year-over-year to $33.0 billion in Q3 2025, with operating income of $11.4 billion according to Q3 results. This segment's growth is fueled by surging demand for AI infrastructure and core cloud services, with AWS reaccelerating its growth to 20.2% YoY-the highest in 11 quarters according to financial reports. Analysts view AWS as a critical driver of Amazon's future profitability, given its high-margin, recurring revenue model as noted in investment analysis.

Valuation Metrics: Premium Pricing vs. Forward Growth

Amazon's trailing P/E ratio of 32.42 and forward P/E of 28.57 according to market data suggest a premium valuation. However, these metrics must be contextualized against the company's earnings trajectory. Zacks Research forecasts FY2025 earnings per share (EPS) of $7.11, with projections rising to $8.57 by FY2027-a compound annual growth rate (CAGR) of 14.2% as projected by financial analysts. At a forward P/E of 28.57, this implies a 2026 price-to-earnings growth (PEG) ratio of approximately 2.0, which is high but not unprecedented for a high-growth stock as noted in investment commentary.

The disconnect between Amazon's valuation and its performance may stem from short-term challenges, such as the North America legal settlement and macroeconomic headwinds. Yet, the company's operating income excluding special charges $21.7 billion in Q3 2025 and AWS's 20% growth rate according to Q3 results suggest a strong foundation for long-term value creation.

Analyst Forecasts: Optimism for 2026 and Beyond

Analysts remain cautiously optimistic about Amazon's 2025–2026 outlook. Wedbush's Scott Devitt raised his Q3 2025 revenue forecast to $179.37 billion, outpacing consensus estimates according to market reports, while S&P Global analysts highlight Amazon's investments in automation and Project Kuiper as potential catalysts as reported by market research. For the International segment, consensus revenue estimates for FY 2026 have increased significantly, reflecting confidence in currency tailwinds and operational improvements based on market intelligence.

AWS, in particular, is seen as a long-term growth engine. With 3.8 gigawatts of new power capacity added in the past year according to Q3 results, AWS is well-positioned to meet rising demand for AI and cloud infrastructure. Analysts project AWS revenue to grow at a double-digit pace through 2027, further bolstering Amazon's overall profitability as projected by financial analysts.

Is Amazon Undervalued? A Balanced Perspective

The case for Amazon's undervaluation hinges on two factors: segmental strength and valuation normalization. While the stock's P/E ratio appears elevated, its forward-looking metrics-particularly in AWS-justify a premium. The North America segment's legal charges are a one-time hit, and the International segment's growth trajectory is improving.

However, investors should remain cautious. Amazon's reliance on AWS and advertising revenue exposes it to sector-specific risks, such as AI adoption cycles and macroeconomic shifts. Additionally, the stock's 32.42 trailing P/E according to market data is higher than its 10-year average of ~28, suggesting some overvaluation relative to historical norms.

Conclusion

Amazon's 2025 performance may appear disappointing at first glance, but a deeper analysis reveals a company with strong fundamentals and high-growth segments. While the stock is not a classic "value play," its forward-looking valuation metrics and analyst optimism suggest it is not undervalued in the traditional sense-but rather fairly priced for its growth potential. For investors with a long-term horizon, Amazon's dominance in cloud computing and e-commerce, coupled with its ability to innovate in AI and automation, could justify the premium.