After seven consecutive years as the Magnificent 7's weakest performer, Amazon has staged a remarkable turnaround to lead the elite tech group into 2026. The e-commerce and cloud computing giant has charged out of the gate in January, outpacing rivals that had left it behind during 2025's rally. The reversal reflects fundamental improvements in Amazon's two core businesses and raises questions about whether the company is finally ready to reclaim leadership among tech's largest names.

The 2025 Underperformance

Amazon's position as the Magnificent 7's laggard in 2025 was particularly notable given the group's overall strength. While the Bloomberg Magnificent 7 Index rose 25% for the year, that performance was driven almost entirely by Nvidia and Alphabet, which posted extraordinary gains. Amazon's more modest returns placed it at the bottom of the seven-stock hierarchy for the seventh straight year—a streak unmatched by any of its mega-cap peers.

The underperformance reflected investor concerns about Amazon's path to profitability in its retail business and questions about whether AWS could maintain growth against intensifying competition from Microsoft Azure and Google Cloud.

What's Changed

The narrative shifted dramatically in Amazon's most recent quarterly results. Amazon Web Services posted its fastest growth in years, with cloud revenue accelerating as enterprise customers expanded their AI initiatives. The results dispelled concerns that AWS was losing ground to competitors and confirmed that Amazon remains central to the AI infrastructure buildout.

"AWS is seeing demand across all customer segments for AI workloads. We're not just competing—we're winning major enterprise deployments that will drive growth for years to come."

— Amazon executive during recent earnings call

The Cloud Acceleration

Amazon Web Services has emerged as the primary driver of Amazon's stock resurgence. The cloud division has demonstrated that its early AI infrastructure investments are paying off, with customers choosing AWS for critical workloads that require scale and reliability.

The OpenAI Partnership

Perhaps the most significant validation of AWS's AI positioning came with the announcement of a $38 billion contract with OpenAI, the company behind ChatGPT. The agreement commits AWS to deploying clusters of Nvidia's most advanced GPUs specifically for OpenAI's needs, with all capacity targeted for deployment before the end of 2026.

The deal represents one of the largest single cloud computing contracts ever announced and positions AWS at the heart of the AI ecosystem for years to come.

Enterprise AI Adoption

Beyond headline deals, AWS is benefiting from broader enterprise AI adoption. Companies across industries are moving AI workloads from experimental phases to production deployment, requiring the kind of scaled infrastructure that AWS is uniquely positioned to provide.

The Retail Renaissance

While cloud computing captures headlines, Amazon's core e-commerce business has quietly undergone a transformation that is now showing up in financial results.

Margin Expansion

After years of operating at thin or negative margins, Amazon's North American retail operations have achieved consistent profitability. The company has rationalized its fulfillment network, reduced excess capacity built during the pandemic, and implemented operational efficiencies that are flowing to the bottom line.

Advertising Growth

Amazon's advertising business has emerged as a major profit center, generating high-margin revenue from brands seeking to reach shoppers at the point of purchase. The advertising segment now rivals the profitability of AWS while requiring significantly less capital investment.

Agentic Commerce

Amazon is positioning itself at the forefront of what industry analysts call "agentic commerce"—the use of AI assistants to autonomously manage household purchasing decisions. The company's Alexa platform and integrated shopping experience give it natural advantages as AI-powered shopping assistants become more sophisticated.

The $3 Trillion Path

With its recent rally, Amazon's market capitalization has approached $2.5 trillion. Wall Street analysts increasingly view a path to $3 trillion as achievable by the end of 2026, which would require approximately 20% additional upside from current levels.

Analyst Expectations

Goldman Sachs recently named Amazon its top large-cap pick for 2026, raising the price target to $300 and highlighting the company's unique combination of cloud leadership and retail profitability improvement.

The bull case rests on several factors:

  • AWS acceleration: Continued cloud growth driven by AI adoption
  • Retail margins: Further expansion as efficiency improvements compound
  • Advertising strength: High-margin revenue stream with room for growth
  • International opportunity: Emerging market e-commerce remains underpenetrated

The Magnificent 7 Shake-Up

Amazon's resurgence is part of a broader reshuffling within the Magnificent 7. The group that dominated stock market returns in 2024 and 2025 is showing signs of dispersion as investors differentiate between AI winners and companies perceived as less central to the theme.

Diverging Fortunes

While Amazon and Alphabet have started 2026 strongly, other Magnificent 7 members face headwinds. Apple is navigating leadership transitions and questions about its AI strategy. Tesla confronts intensifying EV competition and political controversies. Microsoft's growth has moderated from pandemic peaks.

The result is a market that no longer treats the Magnificent 7 as a monolithic block. Stock selection within the group matters more than it did during the indiscriminate buying of 2023-2024.

Risks to the Thesis

Despite the optimism surrounding Amazon, several risks could derail the rally:

  • Cloud competition: Microsoft and Google continue to invest aggressively in AI infrastructure
  • Consumer weakness: Economic slowdown could pressure discretionary spending
  • Regulatory scrutiny: Amazon faces ongoing antitrust investigations in multiple jurisdictions
  • Valuation stretch: Strong performance has pushed multiples above historical averages

What Investors Should Watch

Several metrics will help investors track whether Amazon's turnaround is sustainable:

  • AWS growth rate: Can cloud revenue maintain acceleration or will growth moderate?
  • Retail margins: Are profitability improvements continuing or plateauing?
  • Free cash flow: Is improved profitability translating to cash generation?
  • Competitive positioning: How is AWS faring in major enterprise AI deals?

Amazon's journey from Magnificent 7 laggard to leader demonstrates how quickly market narratives can shift. The company that seemed perpetually overshadowed by flashier peers has emerged as a 2026 standout by delivering fundamental improvements in its two core businesses. Whether that momentum can continue will depend on execution against the substantial expectations now priced into the stock.