Prediction: This Will Be Amazon's Stock Price by the End of 2026
Prediction: This Will Be Amazon's Stock Price by the End of 2026
Keithen Drury, The Motley FoolWed, August 19, 2026 at 6:53 PM UTC
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Key Points -
Amazon Web Services is seeing major growth acceleration.
The stock is priced at bargain levels.
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Amazon(NASDAQ: AMZN) has had an exciting couple of weeks. Prior to reporting earnings, its stock was flat for the year. Following earnings, it spiked 20%, although it has since come down to around a 15% gain for the year. However, I think this slight sell-off following the initial spike is about investors taking some gains, while long-term bulls are currently piling into this stock.
The reality is that Amazon delivered a jaw-dropping quarter, and its future looks incredibly bright. This could ignite a year-end rally leading to new highs before 2026 is over.
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What made Amazon's Q2 so special?
When most investors think about Amazon, they undoubtedly focus on the commerce operation of buying and delivering goods. While this is what built the company into the behemoth it is today, it's not what will make it bigger.
During the second quarter, North American commerce sales rose by 16% year over year, while international sales increased by 15%. Those are strong results, but they aren't going to lead to the kind of growth that gets investors excited, especially in the age of investing in artificial intelligence (AI). However, management has a growth trick up its sleeve that's benefiting from the AI building boom: cloud computing.
Amazon Web Services (AWS), the company's cloud computing division, is the largest cloud provider in the world. AWS is thriving because most companies that want to develop or deploy AI applications don't have the necessary computing power, so they turn to cloud providers.
Amazon is more than happy to oblige, as it makes a nice profit on buying computing capacity, then renting it back out to clients. There is so much demand that Amazon is budgeting around $220 billion on total capital expenditures this year. Still, that won't be enough.
CEO Andy Jassy said on the conference call that his company does not have enough computing capacity to meet demand in 2026 and will likely be in the same situation in 2027. Management is already seeing 2028 demand pop up, indicating that this elevated spending will likely persist, and it's also delivering strong results. Total revenues in 2026 are projected at $828 billion.
With high demand for cloud computing capacity, Amazon has to spend a boatload of money for infrastructure. Then, it can focus on growth and profitability. This is already showing up, as AWS revenue has picked up the pace and grew 37% year over year during the second quarter.
Once Amazon's 2026 investment of $220 billion goes online, this will intensify the effect, leading to outsize revenue growth. As another boost, AWS actually generated 60% of its parent company's operating profits during the second quarter thanks to its superior margin profile. This means overall profits will grow faster than revenue, potentially leading to strong stock gains.
But where will the stock price be by the end of the year?
Amazon is due for more upside
At 21 times earnings, Amazon stock is about as cheap as it has been in recent history. Furthermore, it's far cheaper than the S&P 500, which trades for 25.3 times earnings.
AMZN PE Ratio data by YCharts; PE=price to earnings.
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The problem is that this metric is currently skewed by one-time effects due to gains on investments. Instead, I'll look at Amazon's operating price-to-earnings (P/E) ratio, which doesn't include these effects.
AMZN Operating PE Ratio data by YCharts
Since 2025, Amazon seems to have settled into being valued at about 30 times operating profits, which is a similar level to its big tech peers. That tells me that it's not undervalued right now. As a result, any stock growth will come as a result of business growth.
Over the past few quarters, Amazon's operating income growth has accelerated to about double the pace of its revenue growth -- a trend that will likely persist due to AWS's strength.
AMZN Revenue (Quarterly YoY Growth) data by YCharts
If Amazon can keep growing its operating income at its current pace and maintain the 13.7% margin it produced in Q2, then Amazon projects to produce $114 billion in operating income for 2026. At a 30 times operating P/E valuation, that would price the company at $3.4 trillion. That indicates a 22% upside from today's stock price, leading to a projection of $316 per share at the end of the year.
That's a great gain in just a few months, making Amazon a smart stock to buy now.
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Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
Source: “AOL Money”
