Amazon Stock Analysis 2025: AWS, Advertising, and Prime Driving Growth
Amazon (AMZN) — A Complete Guide
How Amazon’s “Money-Making Engines” Really Work, at a Glance
Amazon is a diversified platform that generates cash from four pillars: ▲Global Retail (first-party and marketplace) ▲Cloud (AWS) ▲Advertising (retail media and CTV) ▲Subscriptions (Prime and digital content). The walkthrough below connects structure, real-world examples, and numbers (using the most recent quarterly figures you provided) so anyone can follow the story end-to-end.
---
1) Segments — “Three Wheels”
North America (NA): Retail, advertising, and Prime in the U.S. and Canada.
International (INTL): Retail, advertising, and Prime outside North America; more exposed to FX and local regulation.
AWS: Global cloud infrastructure and platform. Reported separately and the highest-margin wheel.
These three wheels don’t spin in isolation. Retail (traffic) → Advertising (monetization) → Prime (lock-in) → more sellers and selection → more traffic, all on a “flywheel” with AWS as the high-margin engine layered on top.
---
2) Revenue Lines — “Where the Money Comes In”
Amazon breaks out revenue as follows:
Online stores: First-party (1P) sales and digital transactions
Physical stores: Whole Foods and other brick-and-mortar
Third-party seller services: Marketplace fees, FBA (fulfillment, storage, shipping), last-mile charges
Advertising services: Sponsored listings, display/video, and CTV
Subscription services: Prime fees and digital subscriptions (music, video, etc.)
AWS: Cloud infrastructure and platform usage
Other: Devices and miscellaneous services
> Key point
1P expands top line but is lower margin. 3P + Advertising + AWS carry higher margins. That’s the shorthand to understand Amazon’s profit engine.
---
3) “What’s Making the Money Now”
Advertising: Q2 2025 $15.694B (+23% YoY) — fueled by retail search/recommendation inventory and expanding CTV.
AWS: Q2 2025 $30.873B (+17.5%), operating income $10.16B, margin 32.9% — still the core profit engine.
3P Seller Services: Q2 2025 $40.348B (+11%) — steady growth from fees and FBA logistics.
> Why CTV matters
Via integrations with major U.S. CTV platforms, Amazon can reach tens of millions to hundreds of millions of households. Because ads are targeted using first-party retail data (search, purchase, cart), CTV becomes another conversion-efficient channel and adds incremental momentum to ad revenue.
---
4) How Amazon Makes Money — As a Story
(A) Retail — Dividing Roles Between 1P and 3P
1P (first-party): Amazon buys wholesale and sells retail. Big revenue, thinner margins (inventory/returns/price competition).
3P (marketplace): Sellers list products; Amazon monetizes fees + FBA logistics + payments + ads. A Prime badge boosts conversion, which in turn drives more ad and logistics usage.
A day-in-the-life scene
A new vitamin brand onboards → sends inventory to FBA for a Prime badge → buys sponsored ads → wins search placement → sales rise → fees, storage, shipping, and ad spend scale along with orders → reviews accumulate and organic traffic improves.
Result: Amazon earns without inventory risk (3P), monetizing fees + logistics + ads at once, while customers get fast delivery, reviews, and price competition.
(B) Advertising — Retail Media Powered by Purchase Data
Amazon owns pre-purchase surfaces like search results, product pages, and checkout steps. Performance and attribution are clearer here than in generic media. With CTV (Prime Video + partners), the living-room screen links back to the cart on mobile — a cross-screen funnel.
(C) AWS — Turning Retail Cash Flow into High-Margin Growth
AWS sells compute, storage, databases, and AI platforms on a time/usage basis. Customers launch fast without upfront capex. Amazon makes large upfront investments (data centers, networks, chips, power contracts) to gain scale economies and defend high group margins.
(D) Prime — The Lock-In
Prime bundles fast/free shipping with video, music, e-books, and more. The more customers are locked in, the more you see (1) higher purchase frequency, (2) more ad exposure and conversion, (3) more seller onboarding — which accelerates the flywheel.
---
5) Costs and Cash Flow — The Short Tour
Cost of sales: 1P procurement, freight, returns
Fulfillment: Warehousing, packing, last-mile network
Technology & content: AWS, recommendations, Prime Video (R&D and content)
Marketing: Retail/Prime/devices promotion
Depreciation: Spreading past capex across logistics, transport, servers, and data centers
Working capital: 3P flows often mean cash in from customers before payouts to sellers (seasonal benefit)
> Lately, AI/data-center capex has increased, pressuring FCF in the near term. The medium-term calculus hinges on “AI demand → AWS & ad monetization → FCF recovery.”
---
6) NA vs. INTL — Why Profitability Differs
NA benefits from density and scale, so profitability is typically stronger.
INTL varies more with FX, regulation, and logistics maturity. Even within retail, region and product mix drive different margin outcomes — and you can see that in the financials.
---
7) Why “3P + Ads + AWS” Is Strategically Central
1. Lower inventory risk: 3P is fee-based and more resilient in slowdowns.
2. Higher-margin mix: More ads and AWS = higher group operating margin.
3. Data & measurement loop: Retail purchase data → ML/ad targeting → better conversion → more sellers/advertisers.
4. Lock-in: Prime makes it hard to leave, increasing long-term customer value.
---
8) A One-Screen Look at “Amazon in a Day”
Morning: a customer searches “probiotics.” Sponsored slots appear at the top.
They click and add a Prime-badge product to the cart → 3P fees + FBA storage/shipping + ad revenue accrue.
Evening: the same customer sees a probiotics CTV ad on Prime Video and repurchases the next day.
Behind the scenes, AWS runs recommendations, search, checkout, and programmatic bidding in real time, upgrading both retail and ad quality.
---
9) Bottom Line
1. Amazon earns across Retail, Ads, AWS, and Prime.
2. 1P grows revenue; 3P + Ads + AWS drive profits.
3. Ads operate at purchase intent, combining growth with strong margins.
4. AWS is a high-margin engine that benefits from scale.
5. Prime lock-in accelerates the flywheel across traffic, ads, 3P, and AWS.
---
Financial Flow & Competitor Context — “Turning Numbers into a Story”
(1) Full-Year Snapshot (FY 2024)
Revenue $637.9B (+11%)
The composition matters more than the raw growth. 1P alone wouldn’t deliver double-digits sustainably. 3P fees, Ads, and AWS are the incremental drivers — a signal of quality growth.
Operating income $68.6B (margin 10.8%)
Margin profile has stepped up vs. history, implying: (1) regionalized logistics (shorter last mile), (2) less reliance on low-margin 1P, (3) higher-margin Ads/AWS mix.
Message: Transition from “big retail revenue” to a platform with two high-margin engines (AWS & Ads) is well underway.
(2) Quarterly Snapshot (Q2 2025)
Revenue $167.7B (+13%) / Op. income $19.2B (vs. $14.7B)
Operating leverage (profit grows faster than sales) suggests a richer mix of higher-margin pipes.
By segment: NA $100.1B (+11%), INTL $36.8B (+16%), AWS $30.9B (+17.5%)
NA remains the cash cow via density and scale; INTL is more volatile but outgrew NA this quarter; AWS maintains high-margin growth.
Trailing-12-month FCF $18.2B (down from $53.0B)
Profitability improved while FCF fell because AI/data-center capex is recognized as cash outflow first.
Takeaway: Early-cycle cloud/AI dynamics often show “earnings up, FCF down.” The question is when depreciation, pricing, and usage catch up to the investment.
> Capex note
Quarterly capex is in the $30B+ range; the $100B+ full-year possibility is market chatter (not official guidance). Stay conservative and focus on the linkage: investment → monetization (pricing, usage, mix, margins).
(3) Three-Line P&L Summary
1. Retail = scale; 3P + Ads + AWS = profits
Heavy 1P skews revenue up but dilutes margins; 3P + FBA + Ads repair retail margins; AWS is the final line of defense for group margins.
2. Leverage comes from mix and network
More Ads/AWS per $1 of revenue = more profit per $1. Localized, faster logistics also protect thin retail margins.
3. FCF is sensitive to the capex cycle
FCF (free cash flow) = operating cash – investment (what’s left over)
Capex = long-term assets (data centers, servers, logistics, AI chips)
When capex ↑, FCF ↓; when capex ↓, FCF ↑ — all else equal.
Amazon example
2025: AI/cloud build-out drives capex surge (c. $31.4B in the quarter; $100B+ annualized scenarios discussed) → TTM FCF drops from $53.0B to $18.2B.
Not simply “cash isn’t left,” but “sowing seeds” for future AI/cloud monetization.
In short: FCF swings with the capex cycle — smaller during the peak-investment phase, larger when utilization, pricing, and depreciation catch up. AI/data centers, networks, and power contracts are front-loaded; payback is spread over years via depreciation, pricing, and traffic (training/inference demand).
---
4) Competitor Lens — Retail & Cloud
(A) Retail Scale: Walmart vs. Amazon
Walmart FY25 revenue $681.0B → larger at the top line.
But models differ. Walmart is optimized for offline retail; Amazon combines Retail + 3P + Ads + AWS (higher-margin engines).
Bottom line: Volume edge: Walmart. Composite margin structure: Amazon. Walmart’s grocery-heavy mix is defensive; Amazon has more upside torque via Ads and AWS.
(B) Cloud Share & Growth: AWS vs. Azure vs. GCP
What is cloud?
Renting servers, storage, databases, AI on demand instead of buying and operating them in-house.
Amazon: AWS
Microsoft: Azure
Google: GCP
These are the global “Big Three.”
Shares (approx., Q2 2025): AWS ~29–30%, Azure ~22%, GCP ~12% → AWS leads in scale.
Growth: AWS +17.5%, Azure +39%, GCP +32% → AWS is biggest but slower; Azure/GCP are smaller but faster.
Read-through:
AWS: #1 in absolute size and profitability (growth slower).
Azure: leverages Microsoft’s enterprise base for rapid growth.
GCP: closes in with strengths in data and AI.
Oracle and others: gaining visibility thanks to AI demand.
---
5) Momentum (Tailwinds) vs. Risks (Headwinds)
Tailwinds
1. Retail media & CTV expansion — better targeting/measurement from purchase data; more CTV inventory → higher ARPU and advertiser retention.
2. AWS’s AI cycle — large training/inference demand and enterprise conversions → usage up, customer wins up, room to sustain/improve margins.
3. Retail profitability work — regionalized networks, faster delivery, and returns control protect thin retail margins and maximize group leverage.
Headwinds
1. Regulation (U.S./EU) — FTC scrutiny and EU DSA/DMA compliance can depress the multiple.
2. Capex/FCF pressure — peak AI infrastructure spend; sensitive to rates, power, land, and supply chains.
3. Intense cloud competition — Azure/GCP growth and Oracle backlog; battles over price, performance, and ecosystems.
4. Macro (consumption/FX) — retail and ads are cyclical; a strong dollar also affects INTL translation.
---
The “7-Point Checklist” Before You Invest
1. Ad growth: Is YoY still 20%+?
2. AWS margin/growth: Is ~30%+ operating margin intact? Any re-acceleration?
3. Investment → cash timing: When does peak capex roll into FCF recovery?
4. 3P mix: Is 3P (fees/logistics/ads) taking more share from 1P?
5. Prime lock-in: Pricing/benefit changes; more sports and video bundling?
6. Regulatory news: Any FTC/DSA/DMA outcomes that could alter ad/fee structures?
7. Multi-cloud & AI deals: Are PoCs converting to production and are large AI wins announced?
---
12–24 Month Scenarios
① Base Case (most likely)
Ads grow 20%+ annually; AWS holds mid- to high-teens growth; retail margin holds via efficiency. Capex remains heavy but FCF starts to recover. Regulatory noise is offset by earnings revisions.
Call: Gradual uptrend with volatility.
② Bull Case (upper bound)
CTV + search ads lift budget and retention; AWS wins multiple large AI deals, re-accelerates, and keeps high-30s margins; power/chip efficiency improves → faster FCF comeback; market re-rates the multiple.
Call: New highs are plausible.
③ Bear Case (lower bound)
Regulation crimps ad/fee structures; Azure/GCP price offensives cool AWS growth; power/land/supply bottlenecks slow monetization → FCF recovery lags; multiple stays discounted and the stock tests range lows.
Call: Prolonged box range at the lower end.
One-liners
Base: steady growth, uptrend with bumps
Bull: ads + AI cloud fire together → new highs
Bear: regulation + competition + investment drag → lower-range retest
---
Amazon in One Paragraph — “Shifting to Quality Growth”
Amazon is moving from pure scale to quality of earnings — which lines are growing and at what margin. In 2024 it lifted operating margins through mix (more Ads/AWS) and network efficiency. In 2025, AI infrastructure capex weighs on near-term FCF, a typical pattern early in cloud/AI cycles. The three swing factors for the next 1–2 years are (1) sustaining high ad growth, (2) converting AI demand into AWS usage at scale, (3) timing the capex-to-FCF turn. With retail shifting toward 3P and fulfillment efficiency improving, and assuming regulation/competition are managed, the medium-term setup still points to re-affirmed margins and cash generation.
Plainly put: Amazon is prioritizing future growth and higher-margin mix over near-term cash. If Ads and AWS keep compounding, strong FCF returns are the base-case outcome.
---
Price Action & Forward Scenarios (Near/Mid/Long Term)
> Chart work is about probabilities, not certainties.
1) Where We Are (Price Structure)
Price: ~$228.15
52-week range: $161.38–$242.52 (about 6% below the top; upper-range consolidation)
50-day MA: ~$226.6 (watch support vs. breakdown)
Why it matters
Around $226 (50DMA), flows are sensitive. Holding above it favors a retest of $241–$242; losing it often invites a revisit of the low-$220s. Post-7/31 earnings volatility → early-September +4% surge → consolidation; $241–$242 still acts as near-term resistance.
2) Key Zones (Flow & Psychology)
Think in zones, not single prints:
~$242: 52-week high area; breakouts need volume; otherwise risk of throwback.
~$226: 50DMA; support hold invites longs; failure raises drawdown risk.
Low-$220s: prior check zone; a common buy-the-dip candidate.
~$215: practical risk-guardrail for many playbooks.
> Bonus — Fibonacci (52-wk high 242.52 / low 161.38)
38.2% $211.52, 50% $201.95, 61.8% $192.38 → if $226/$220s fail, $211 → $202 → $192 are typical mid-term retrace shelves (not guarantees).
3) Event Calendar (What Can Move It)
Fed path (rate cuts): Drives multiples and FCF discounts. Gentle cuts help growth equities; re-heating inflation/strong USD adds volatility.
Q3 guidance delivery: Company range $174–179.5B revenue, $15.5–20.5B op inc. A beat + AWS/Ads momentum aids a retest of highs.
AI/cloud deals & capex updates: The medium-term trade is “when does heavy capex flip to FCF?” Watch large AI wins and pricing/usage color.
4) Scenario Planning
Near term (1–3 months) — “Top-of-range duel vs. pullback checks”
Base: $226 (50DMA) holds ↔ $242 retest. Confirm volume on any breakout; low-volume breaks often fail.
Risk: Reg headlines or capex worries → lose $226, check low-$220s; extended sentiment breaks can tag $210s (38.2% fib).
Three quick checks
1. Volume/OBV: Is volume expanding on resistance tests?
2. Momentum (RSI/MACD): RSI holding 50–60 and turning up? MACD bull cross?
3. Candles in context: Upper wicks into resistance vs. full-body closes through it.
> Tip: Rather than chase breakouts, many prefer “buy the support confirmation, scale in” — with predefined stops and sizing.
Mid term (6–12 months) — “Earnings & FCF re-rate window”
Positives to watch
1. Ads 20%+ growth (incl. CTV)
2. AWS re-acceleration via GenAI PoC→production conversions
3. Capex peak-out cues (power/chips/land efficiency) → FCF recovery
Negatives to watch
1. Azure/GCP/Oracle pricing bundles
2. FTC/DSA compliance costs/constraints
3. Macro drag on retail/ads
Scorecard sequence
(1) Ad growth → (2) AWS margin/growth → (3) FCF/capex turn timing.
Long term (3–5 years) — “Two engines + one lock-in”
AWS: Scale plus breadth (data/AI/dev tools) = durable moat
Retail media: Closed-loop measurement from purchase data = bigger ad wallet share
Prime: Content/sports bundling = stronger lock-in
Condition: Multiple depends on regulation, competition, and capex balance. More regulatory risk = lower multiple unless earnings revisions offset it.
---
Practical Checklist (Holders & New Buyers)
> Not investment advice — a framework for information checks.
1) The “Big Three” numbers
Ad growth: YoY/QoQ 20%+?
AWS margin/growth: ~30%+ margin; signs of re-accel?
FCF/capex: Clear peak-capex → FCF upturn signals?
2) Price playbook (examples)
Aggressive: Buy $226 support on volume/momentum confirmation; scale.
Conservative: Wait for low-$220s retest (better risk-reward).
Risk control: Below ~$215, follow pre-set rules (trim/hedge).
3) News flow
Regulation (FTC/EU DSA/DMA): Any ad/fee structure changes?
Cloud & AI deals: PoC→production counts as a signal for share and growth.
4) Comps
52-wk H/L: $242.52 / $161.38 (handy for framing risk/reward)
Peer growth: Azure ~39%, GCP ~32% (recent quarter estimates) for relative value context
---
Technical Reads — How to Use the Tools (Conditionally)
Moving averages (5/20/50/200DMA): “Golden stack” (short above long) = higher odds of an uptrend; losing 50DMA then 20DMA often deepens pullbacks.
RSI(14): Hold >50 then push >60 = trend resumption; >70 with falling RSI vs. new price highs = bearish divergence risk.
MACD: Bull cross + zero-line reclaim = trend strength; shrinking histogram at resistance = breakout-fail risk.
Volume/OBV: Breakouts need volume; OBV making new highs ahead of price can be a lead signal.
> These are tendencies, not rules. Align multiple signals to improve odds.
---
Summary — Compressed Highlights
Now: Upper-range battle $226 (50DMA)–$242 (highs).
Near term: Hold $226 → $242 retest; lose it → $220s / $211 fib checks.
Mid term: Ads 20%+, AWS re-accel, capex→FCF turn = earnings up & multiple defended.
Long term: AWS scale + retail-media loop + Prime lock-in; multiple set by the balance of regulation/competition/capex.
---
One-Line Execution Cue
“$226 hold/break + volume/momentum” → near-term direction
“Ads + AWS + FCF” → mid-term re-rating
“Reg/comp/capex balance” → multiple’s ceiling/floor
---
Disclaimer: This material is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Investors should make their own decisions and bear responsibility for their results.