Amazon (AMZN) is turning its long-delayed drone-delivery dream into a much larger business. The company plans to expand Prime Air to nearly 500 U.S. cities and towns by the end of 2026, a sixfold increase from its current footprint. The move comes just weeks after Amazon delivered a powerful second-quarter earnings beat, giving investors another reason to watch AMZN stock closely.
The question now is whether the drone expansion gives AMZN stock another catalyst.
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Amazon’s Stock Has Pulled Back From Its Highs
AMZN stock remains well below its 52-week high of $287.20 but is still up roughly 12% year-to-date (YTD), thanks to its booming business.
The latest pullback does not erase the company's strong earnings momentum. Amazon's Q2 operating income jumped 43% to $27.5 billion, while AWS revenue surged 37% to $42.2 billion, its fastest growth in 18 quarters. AWS now has a $169 billion annualized revenue run rate.
The main concern is spending. Amazon expects 2026 capital expenditures of roughly $220 billion, largely to build AI infrastructure. That massive investment is pressuring free cash flow and could keep the stock volatile even as earnings accelerate.
www.barchart.com AMZN Valuation Still Leaves Room for Upside
Amazon is not a traditional cheap stock. Based on current market data, AMZN trades at roughly 21 times trailing earnings and about 22 times forward earnings. Its PEG ratio is around 1.5.
That valuation looks more reasonable when compared with Amazon's growth. AWS is accelerating, advertising remains an important profit driver, and the company continues to improve its retail economics.
The key is that investors are not simply paying for today's e-commerce business. They are paying for AWS, AI, advertising, logistics, and other emerging businesses that could materially expand Amazon's earnings power over the next several years.
Drone Delivery Could Strengthen Moat
The Prime Air expansion is strategically important, even if it does not immediately move Amazon's earnings.
Amazon currently operates Prime Air from 11 locations and plans to reach nearly 500 cities and towns by year-end. The drones can carry packages weighing up to five pounds, with eligible orders arriving in as little as 30 minutes. Amazon says it has already completed hundreds of thousands of drone deliveries this year and expects roughly 1 million deliveries in 2026.
That could make Prime more valuable. Faster delivery can encourage customers to order more frequently, particularly groceries, medicines, and everyday essentials.
It also gives Amazon another potential advantage in last-mile logistics. Drones will not replace trucks or delivery vans, but they could eventually handle selected short-distance orders more efficiently. Amazon is also competing with Walmart and other companies pursuing drone delivery, making scale increasingly important.
Still, investors should not treat Prime Air as an immediate earnings driver. The service remains a small part of Amazon's overall business, and regulatory, weather, safety, and community concerns remain risks.
Amazon Has Much More Than Drones Going for It
The larger Amazon story remains AWS and AI. AWS grew 36.7% in Q2, while Amazon has increased its investment in AI chips and data center infrastructure. Management has also discussed substantial long-term demand for additional computing capacity.
Amazon is simultaneously expanding same-day fulfillment, advertising, AI services, and its custom semiconductor businesses. That diversified growth engine matters more for AMZN stock than drone deliveries alone.
What Wall Street Says About AMZN Stock
Analysts remain bullish on AMZN stock's prospects. Morgan Stanley's Brian Nowak has a “Buy” rating and a $335 price target, implying roughly 29% upside from Aug. 23's close. Nowak has also outlined a bullish scenario in which AWS eventually reaches $1 trillion in annual revenue.
Goldman Sachs recently raised its Amazon target to $375 from $335 while maintaining a “Buy” rating, citing stronger AWS and AI momentum. Jefferies maintains a “Buy” rating with a $320 target.
Overall, it's a solid “Strong Buy” consensus with a mean price target of $326.49, suggesting more than 25% upside premium.
So, for investors, the drone rollout is an intriguing long-term catalyst, but AWS remains the bigger reason to own AMZN. The combination of accelerating cloud growth, AI investment, and a rapidly expanding logistics network could keep Amazon's long-term growth story intact despite near-term spending concerns.
www.barchart.com On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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