This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Amazon has been a laggard the past few years.
- However, the company has been doing a lot right behind the scenes, including improving the operational efficiency of its e-commerce operations.
- Meanwhile, growth should begin to accelerate at AWS.
The "Magnificent Seven" stocks -- which include Apple, Amazon (NASDAQ: AMZN), Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla -- turned in another solid performance in 2025, up a cumulative 25%, as of Dec. 3.
Alphabet, which was my pick to be the top-performing "Magnificent Seven" stock in 2025, has led the way, easily outperforming its peers.
| Stock | Year-to-Date Performance (as of Dec. 3) |
|---|---|
| Alphabet | 67.4% |
| Nvidia | 35.2% |
| Microsoft | 17.1% |
| Apple | 14.8% |
| Meta Platforms | 10.8% |
| Amazon | 6.9% |
| Tesla | 6.3% |
Data source: PortfoliosLab.
While Alphabet remains one of my favorite stocks to own for the long haul, I think another surprising stock will emerge to lead the group higher in 2026. That stock is Amazon.
Breaking out in 2026
Amazon has admittedly been a laggard among the Magnificent Seven in recent years, with the stock up less than 50% over the past five years. However, that's the same setup stocks like Alphabet and Meta experienced in recent years before they broke out. And while its stock has underperformed in recent years, the company has been doing a lot of things behind the scenes that are improving both its e-commerce and cloud computing operations.
Amazon came to dominate the e-commerce landscape not by just selling goods online, but by building out the largest fulfillment and logistics network on the planet that could get customers these items quickly. More recently, it has been turning to robots and artificial intelligence (AI) to further this mission, while also creating huge operational efficiencies.
One area that is greatly underappreciated at Amazon is its leadership in robotics. Because the company is designing and making these robots for its own use, it does not get nearly the recognition it deserves in this field. However, it now deploys more than 1 million robots at its fulfillment centers, some of which can perform advanced tasks. For example, earlier this year, it introduced a robot called Vulcan that has a sense of touch, which allows it to handle many more types of items than the average robot. It also has robots that can detect damaged products before they are sent out, saving money on costly returns, as well as robots that can fix themselves.
These robots are all now coordinated by its DeepFleet AI model to operate in the most efficient way possible. The company is also using AI in other areas, such as helping optimize delivery routes, determining the best-located warehouses to store items closer to last-mile delivery, and helping drivers find hard-to-locate drop-off spots in places like large apartment complexes. This all helps speed up delivery times and reduce costs.
Another overlooked area Amazon is seeing success with is digital advertising. The company is now the third-largest digital advertising company in the world, behind only Alphabet and Meta Platforms. This is a higher gross margin business that Amazon is growing quickly through the use of AI tools, which can help merchants create better campaigns and listings and improve targeting.
All of these efforts are driving strong operating leverage in Amazon's e-commerce business. This could be seen last quarter when the adjusted operating income for its North American segment surged 28% on an 11% increase in revenue.
Cloud computing leader
Amazon's largest segment by profitability is its cloud computing business, AWS (Amazon Web Services). The company created the entire infrastructure-as-a-service business model, and it remains the market share leader today. However, AWS' growth has trailed that of its rivals: Microsoft's Azure and Alphabet's Google Cloud. That has likely hurt the stock.
But AWS' revenue began to accelerate last quarter, increasing by 20%, and it has strong growth prospects ahead. It is still ramping up its massive Project Rainier data center, which was built exclusively for Anthropic. The data center is fully operated with its custom Trainium 2 AI chips, and it expects the AI cluster to reach 1 million chips by the end of the year. Additionally, the company signed a $38 billion deal with OpenAI, which will run some of its AI workloads on Amazon's data center infrastructure that employs Nvidia graphics processing units.
Like other cloud providers, AWS is capacity-constrained, and the company is ramping up its capital expenditures to meet increasing demand. Earlier this month, it introduced a number of new AI hardware (including its Trainium3 AI chip) and software tools. It also sees a huge opportunity with AI agents and its AgentCore offering.
The top "Magnificent Seven" stock for 2026
Amazon is expanding its AI capabilities and moving to capture more AI revenue streams within the cloud, which should bode well for growth next year. Meanwhile, its e-commerce operations are seeing strong operating leverage and could get a boost from any economic improvement that comes from lower interest rates or reduced or eliminated tariffs in 2026.
With the stock entering the new year at one of its lowest historical valuations, trading at a trailing price-to-earnings (P/E) ratio of below 33 times, Amazon is my choice to be the best-performing Magnificent Seven stock for 2026.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
