Amazon shares managed by AWS. Is it too late to buy?

Amazon (AMZN 2.15%) Shares rose sharply after third-quarter results, which were again driven by cloud computing AWS segment. The company’s shares are now up more than 25% year-over-year.

Showing the fickleness of the market, AWS’s growth in the third quarter was essentially the same as in the second quarter, when the stock sold off on the news, but investors were much more optimistic after the third quarter report. Let’s take a closer look at Amazon’s latest results to see if it’s too late to buy the stock.

AWS Delivers Growth

AWS was big news for Amazon again, with revenue for its cloud computing segment up 19% to $27.5 billion. Meanwhile, the segment’s operating income rose nearly 49% from $7 billion to $10.4 billion. It is a business with high fixed costs and high operating leverage, and the increase in revenue helped lift operating margin to a record high for the division.

Amazon said its AWS AI revenue, meanwhile, grew by triple digits. The company said it views generative artificial intelligence as a “once-in-a-lifetime opportunity.” The company will spend $75 billion. capital costs (capex) this year to help take advantage of this opportunity, and plans to spend even more in 2025.

The company also said there is significant interest it is seeing in its dedicated AI chips: Trainium for training and Inferentia for learning. conclusion. The company said it repeatedly had to turn to its manufacturing partners to produce more chips than originally expected. Amazon also said it sees organizations standardizing their AI model based on its SageMaker product.

In Amazon’s consumer business, North America sales rose 9% to $955.5 billion, while international sales rose 12% to $35.9 billion. North American operating profit jumped 33% to $5.7 billion, while The international segment reported operating income of $1.3 billion, compared with a slight loss a year ago.

Advertising services again led the way, with revenue up 19% to $14.3 billion. The company said sponsored advertising was performing very well by and large as it entered its first season of airing Prime Video advertising. Meanwhile, revenue from subscription services rose 11% to $11.3 billion.

Revenue from third-party merchant services rose 10% to $37.9 billion. Revenue from online stores rose 8% to $61.4 billion, and revenue from brick-and-mortar stores grew 5% to $5.2 billion.

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

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

Is it too late to buy Amazon shares?

Amazon’s AWS segment continues to deliver strong revenue growth and demonstrate significant operating leverage, leading to even stronger operating profit growth. AI is leading the way, and the company continues to invest to meet the growing demand for its AI services.

Meanwhile, it profits from AI in a variety of ways, from cloud computing to large language model (LLM) with SageMaker and Bedrock for their own AI chips in Trainium and Inferentia. The company is also incorporating artificial intelligence into its consumer business to help make recommendations, make it easier for third-party sellers to list items for sale and optimize its logistics network.

The company’s advertising business is also showing strong growth, driven by sponsored product advertising. The company is also adding more advertising to its Prime Video service, and an agreement with the NBA to stream games next season is likely to drive growth for its advertising business in 2026.

Amazon is currently trading at forward price-to-earnings ratio (P/E) the ratio is almost 32.5, according to analyst estimates for 2025. This is below historical P/E levels.

AMZN PE Ratio (Forward Year 1) data on YCharts

Amazon has never been afraid to spend money to win. This has allowed it to become the world’s largest e-commerce, logistics and cloud computing company. Since the company has its sights set on winning in AI and is willing to spend money to get there, I would be a buyer of the stock given its track record of success.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has listings on Amazon and recommends them. The Motley Fool has disclosure policy.