If you ask the average person what Amazon does, they will tell you it delivers brown boxes. If you ask a slightly more informed investor, they will tell you it’s a cloud computing company (AWS) with a gift shop attached.
But if you look at the Q4 2025 earnings released this week, a third reality is emerging.
Amazon is transforming into the world’s most efficient advertising agency. And unlike Google or Meta, it doesn’t need to track you across the internet to know what you want. It already knows, because you are typing it directly into their search bar with a credit card on file.
While the market freak-out yesterday was all about the massive capital spending guidance (more on that later), the smart money is looking at a different line item: Advertising Services.
Here is why the “boring” part of the business is actually the main event for $AMZN shareholders.
The Hidden Profit Engine
For years, the investment thesis was simple: The retail business runs at break-even to crush competitors, and AWS pays the bills.
That math has changed.
In Q4 2025, Amazon’s ad revenue hit $21.3 billion. That is up 22% from last year. To put that number in perspective, Amazon is now generating more ad revenue in a single quarter than companies like Pinterest or Snap generate in several years.
On an annualized basis, this is now an $85 billion business.
Why does this matter? Margins.
- Selling a toothbrush has a profit margin of maybe 2% after shipping.
- Selling an ad for a toothbrush has a profit margin of roughly 50-60%.
When you strip away the warehouse costs and the delivery drivers, the advertising division is likely generating nearly as much operating profit as the entire retail operation. It is pure, high-octane cash flow that subsidizes everything else.
The Trojan Horse: Prime Video
The genius of the strategy is that they didn’t just put ads on the website. They put them in your living room.
When Amazon turned on ads for Prime Video by default in 2024, everyone complained for about a week. Then they got used to it. Now, in 2026, that decision looks like the heist of the century.
By forcing 200 million Prime members to become ad-viewers (unless they pay the “tax” to remove them), Amazon instantly created one of the largest TV ad networks in history.
- The Reach: They have the data to tell an advertiser, “Show this car commercial only to people who have searched for ‘baby car seats’ in the last 30 days.” NBC or CBS can’t do that.
- The Loop: You see the ad on Thursday Night Football, you click the remote, you buy the product. The attribution loop is closed instantly.
This is why ad revenue is growing at 22% while the online store is growing at roughly half that pace. They are monetizing your attention better than they monetize your wallet.
The AI Factor: Rufus is a Salesman
We can’t talk about 2026 without talking about AI. But forget the sci-fi stuff for a second. The immediate impact of AI on the bottom line is making it easier for sellers to give Amazon money.
CEO Andy Jassy was clear on the earnings call this Thursday:
“We are seeing strong growth… and seminal opportunities like AI.”
He isn’t just talking about chatbots. He is talking about tools like Rufus (the AI shopping assistant) and the new generative AI tools for advertisers.
In the past, a small business selling coffee mugs might not advertise because they couldn’t afford a graphic designer. Now, Amazon’s AI builds the ad campaign for them. It generates the image, writes the copy, and targets the buyer automatically.
This lowers the barrier to entry, flooding the platform with new ad dollars from millions of small sellers who previously sat on the sidelines.
The $200 Billion Elephant in the Room
So if the ad business is so good, why did $AMZN wobble after earnings?
Capex.
Amazon announced they plan to spend roughly $200 billion in capital expenditures in 2026. That is a staggering amount of money. For context, that is more than the GDP of entire countries like Hungary or Kuwait.
Most of this is going into:
- Data Centers: To keep AWS dominant.
- Custom Chips: To rely less on Nvidia.
- Project Kuiper: The satellite internet network.
Wall Street hates this because it eats up Free Cash Flow today. But this is classic Amazon. They are spending every dollar of that high-margin ad profit to build the infrastructure of the next decade. They are betting that he who owns the compute (AWS) and the energy (Nuclear deals) wins the world.
The Bottom Line
If you look at $AMZN as a retailer, it’s expensive. If you look at it as a collection of monopolies, the math changes.
You are effectively buying:
- The world’s largest logistics network (Retail).
- The world’s largest cloud provider (AWS).
- The world’s fastest-growing major ad agency.
And you are getting the ad agency for free.
The “Invisible Ad Agency” is the glue holding the valuation together. It provides the cash that allows Jassy to spend $200 billion on robots and satellites without going bankrupt. As long as that 22% growth number holds up, the brown boxes will keep arriving, and the stock will likely keep grinding higher.
