1 Underrated Reason to Invest in Amazon Stock
Key Points
Amazon's advertising business is a rapidly growing, high-margin opportunity.
It could help lift the company's profits over the long run.
Even as Amazon (NASDAQ: AMZN) is one of the largest companies in the world with a market cap near $2.3 trillion, many remain bullish on the stock. One of the most important reasons investors often cite is Amazon's dominance in cloud computing. There are good reasons why this segment gets so much attention. The cloud computing market is large and still rapidly growing, and besides Amazon's leading market share in this niche, it also boasts a competitive edge thanks to switching costs.
However, there are other excellent reasons Amazon's stock is attractive, including a rapidly growing source of revenue that investors shouldn't neglect. Let's look deeper into it.
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Don't underestimate this segment
Amazon has established itself as a leader in digital advertising. Over the past few quarters, advertising sales growth has been on par -- and often even higher -- than revenue growth from the company's cloud division, Amazon Web Services (AWS). The latter still generates higher sales overall. As of the fourth quarter of 2025, AWS's revenue was $35.6 billion, versus $21.3 billion for advertising. But there are several reasons why advertising is so important to Amazon's future. Let's consider two of them.
First, Amazon's wide moat makes it an attractive target for advertisers. The company's competitive advantage stems from network effects and its large scale, which allows it to offer competitive prices. All of that means Amazon continues to attract significant business. Traffic on its website -- which ranks among the top 20 most visited in the world -- is already a solid reason it's a great advertising hub, and it also helps attract more merchants to its platform. There is more.
Amazon uses the massive data it has access to on consumer purchasing habits, search patterns, etc., to help companies craft highly targeted ads. Here, too, there is a network effect: greater consumer activity means more data and even better targeting. This is a goldmine for companies looking to reach potential consumers. Second, the digital advertising business carries high margins. True, so does cloud computing, but that's in comparison to its low-margin e-commerce operations. AWS requires massive investments in data centers, which keep margins somewhat down.
By contrast, once digital ad space is up and running, showing 1,000 ads is barely more expensive than showing 100. So, the extra ads are almost pure profit, leading to very high margins. Amazon does not publish separate margin data for its stand-alone advertising business, but it's a good bet that they are higher than AWS's. That means that, as Amazon's ad business continues to grow, it will lift profits higher. Now, this business could run into trouble, especially if, as some people believe, we are heading for a recession. Consumer activity will likely decline as companies' ad budgets shrink. However, that would be a temporary issue that will resolve once the economy recovers.
Over the long run, advertising should be one of the most important revenue and earnings growth drivers for Amazon, and it is yet another excellent reason to invest in the stock.
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Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
