Market doesn't see 'core value' in Amazon, analyst confident. Is it time to buy shares?

Needham called Amazon's advertising business the company's "core value" that investors have largely overlooked. Although the bulk of revenue is now generated by retail, it's advertising that analyst Laura Martin believes will be the main driver of growth going forward. Amazon is the worst performing stock in the "Magnificent Seven" so far this year.

The advertising division of Amazon, which is known primarily for its retail and cloud business, brings in less than 10% of total sales. So investors often underestimate its importance - and that, according to Needham analyst Laura Martin, is a serious mistake. She called Amazon's advertising the company's "core value," MarketWatch writes.

Despite Amazon's worst performance among the "Magnificent Seven" tech giants this year - the stock is up just 1.4% in 2025 - skeptics are missing the point. According to Martin, it's advertising that will be a more important driver of growth in the near term than AWS cloud service or online commerce.

Amazon shares were adding about 0.4% in the premarket on Oct. 3.

Amazon's advertising business has been growing at about 20% annually since 2019, double the rate of revenue growth for the company as a whole. According to Martin's estimates, this is the most marginal segment in Amazon's structure: advertising's operating margin reaches about 70%, which is roughly double that of AWS. As a result, the advertising division already generates more than half of Amazon's total operating profit.

The rapid growth has made Amazon's advertising business the third largest in the world - after Alphabet (Google's holding company) and Meta (owner of Instagram and Facebook), Martin noted. And this is despite the fact that Amazon only started developing advertising in 2019, while Google and Meta have more than two decades of experience, writes MarketWatch.

Building a strong advertising business is becoming increasingly critical for Big Tech, as it is the business that provides the most profitability. According to Martin, such companies can partially offset the rising costs of artificial intelligence with advertising revenue.

An important factor in Amazon's success has been the integration of its own retail purchase data into its advertising tools. Most US consumers start their product search on Amazon, and the company can show ads to customers already with a high readiness to buy. Complementing this is detailed data on users' past activity, giving Amazon an advantage in targeting.

These features allow the company to "convert views into actual transactions much more efficiently than Meta or Google Search," Martin notes.

AWS cloud business remains an important driver of long-term growth, but its development requires huge investments and does not bring a quick return, the analyst notes. Needham estimates that AWS accounts for more than 80% of Amazon's $100 billion in capital expenditures in 2025. At the same time, the profitability of cloud services is lower than that of advertising, and competition is very high globally, Martin concludes.

This week, several analysts immediately adjusted their forecasts on Amazon stock.

On October 3, Goldman Sachs raised its target price to $275 and maintained a "buy" recommendation. Its assessment implies growth of quotations by almost 24% from the last closing price.

In late September, Wolfe Research also raised its target on Amazon stock to $270, a 21.6% upside potential.

HSBC adjusted the forecast upward - from $256 to $260, also maintaining a "buy" recommendation. This level implies growth of the shares by about 17%.

In general, analysts remain optimistic: 69 experts out of 72 recommend buying Amazon securities (Buy and Overweight ratings). Only three take a neutral position with a Hold recommendation.

This article was AI-translated and verified by a human editor