Amazon Stock Pops Powered by AWS. Is it too late to buy?

Amazon (AMZN 1.61%) Shares rose after third-quarter results, which were again driven by its AWS cloud computing segment. The stock is now up more than 25% year-over-year.

The market's volatility is reflected in the fact that AWS's growth in the third quarter was virtually the same as in the second quarter, when the stock sold off on the news, but investors were significantly more optimistic after the third quarter report. Let's take a closer look at Amazon's recent results to see if it's too late to buy the stock.

AWS drives growth

AWS was once again the big story at Amazon, as revenue in the cloud computing segment rose 19% to $27.5 billion. The segment's operating profit, meanwhile, rose nearly 49% to $10.4 billion from $7 billion. It's a company with high fixed costs and high operating leverage, and the increase in sales helped push the unit's operating margins to an all-time high.

Amazon said its AWS AI revenue has now grown by triple digits. It was said that generative AI was viewed as a “once in a lifetime opportunity”. The company will spend $75 billion in capital expenditures (capex) this year to capitalize on this opportunity and plans to spend even more in 2025.

The company also noted the strong interest it is seeing in its custom AI chips: Trainium for training and Inferentia for inference. The company had to turn to its production partners several times to produce more chips than originally expected. Amazon also said companies are standardizing their AI model, building on its SageMaker product.

On the consumer side of its business, Amazon's North American sales rose 9% to $955.5 billion, while international sales rose 12% to $35.9 billion. The North American segment's operating income rose 33% to $5.7 billion, while the international segment posted operating income of $1.3 billion, compared with a small loss a year ago.

Advertising services again led the way, with revenue growing 19% to $14.3 billion. The company said sponsored ads performed very well across the board as the company enters its first broadcast season for Prime Video advertising. Subscription services revenue, meanwhile, rose 11% to $11.3 billion.

Third-party services revenue rose 10% to $37.9 billion. Online stores increased sales by 8% to $61.4 billion, while physical store sales rose 5% to $5.2 billion.

Overall, Amazon posted revenue growth of 11% to $158.9 billion in the quarter, just above the LSEG analyst consensus of $157.2 billion. Adjusted earnings per share rose 52% to $1.43, well above analyst expectations of $1.14.

Amazon generated operating cash flow of $112.7 billion and free cash flow of $47.7 billion in the quarter.

Image source: Getty Images.

Is it too late to buy Amazon shares?

Amazon's AWS segment continues to experience strong revenue growth and has strong operating leverage, driving even stronger operating income growth. AI is leading the way and the company continues to invest to keep up with the increasing demand for its AI services.

The company now benefits from AI in a variety of ways, from cloud computing to large language model (LLM) services with SageMaker and Bedrock to its own custom AI chips in Trainium and Inferentia. Additionally, the company is bringing AI to its consumer business by helping with recommendations, making it easier for third-party sellers to list items, and optimizing its logistics network.

The company's advertising business is also experiencing strong growth, led by sponsored product ads. Additionally, the company is expanding its Prime Video service to include more advertising, and a deal with the NBA to stream games next season will likely be a growth driver for its advertising business in 2026.

Amazon is currently trading at a forward price-to-earnings ratio (P/E) of nearly 32.5 based on analyst estimates for 2025. This is below historical P/E levels.

AMZN PE Ratio (Forward 1 Year) data from YCharts

Amazon has never been afraid to spend money to win. This has made it the largest e-commerce, logistics and cloud computing company in the world. As the company aims to become an AI winner and is willing to spend money to get there, I would be a buyer of the stock given its strong execution history.