Is Amazon a Buy, Sell, or Hold in 2025?

For many, the arrival of fall means shopping, eating, and spending time with family.

But it's also a good time to evaluate your portfolio and consider which stocks you should purchase, continue to hold, or sell, keeping in mind a long-term view. Just as you make your plans and goals for next year, companies will begin to release their strategies and financial goals for next year and beyond.

Amazon (NASDAQ: AMZN) has certainly pleased investors over the years. In the last five years, the shares' 118% gain outpaced the S&P 500 by about 22 percentage points. Based on the company's long-term growth prospects and valuation, can this continue?

Image source: Getty Images.

The cloud

Amazon Web Services (AWS), the company's cloud computing business, may not be the first thing most people think about when it comes to Amazon. However, it remains in a strong position to continue growing revenue and profits.

AWS, which houses large data centers, helps organizations use data to make better decisions. It's a sector that continues to grow rapidly. And AWS has the highest market share, estimated at 31% in the first quarter, in this attractive segment. Its major competitors, Microsoft's Azure and Alphabet's Google Cloud had 25% and 11% shares, respectively. Amazon continues to invest, including in machine learning and artificial intelligence, to maintain its competitive edge.

AWS continues to perform well. Second-quarter sales grew 18.7% to $26.3 billion. Despite accounting for 18% of Amazon's sales, it represented 64% of operating income. AWS had a 35.5% operating margin, much higher than the North American and international segments.

Other businesses

Amazon's other businesses have been growing sales. These consist of items like online retail sales, subscription services, and advertising.

North American sales grew 9% to $90 billion, and operating profit increased nearly 58% to $5.1 billion. The international business's top line increased 7% to $31.7 billion, and it turned in a $273 million profit compared to an $895 million loss a year ago.

While sales increased across various categories, advertising has posted at least 20% growth for several straight quarters. That includes a 20% gain in the second quarter to $12.7 billion. Amazon has become a particularly desirable place to advertise given its huge number of users and data that advertisers can use to target their audience.

Management expects companywide third-quarter sales of $154 billion to $158.5 billion, representing 8% to 11% year-over-year growth. It budgeted a wide range of $11.5 billion to $15 billion for operating income, however. That's 3% to 34% higher than the $11.2 billion in the year-ago period.

The decision

Amazon's stock price increased 44.6% over the last year, easily besting the S&P 500's 34.4%. The company, once known for entering markets and growing sales while reporting losses, has become hugely profitable. And the market continues to approve of the company's performance.

Investors also expect Amazon to continue performing well and the shares to outpace the overall market based on the current valuation. Amazon's shares have a price-to-earnings (P/E) ratio of 45 compared to 30 for the S&P 500.

That doesn't leave a lot of room for error, but its hugely profitable AWS business remains poised to take advantage of the big market opportunity. With its popular shopping destination that offers convenience, low prices, and easy returns, its other businesses shouldn't see any drop-off in growth.

Hence, despite the relatively high valuation, I'd purchase shares at this point.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.