Amazon.com Inc. (NASDAQ:AMZN) has entered a legal clash with AI startup Perplexity, sending a “cease and desist” letter over its shopping assistant, Comet. The e-commerce giant alleges Comet violates its terms of service and harms customer experience. While the feud has sparked headlines, investors are wondering whether Amazon stock remains a buy amid growing competition and the rapid integration of artificial intelligence (AI) into retail.

Why Amazon Is Targeting Perplexity

Perplexity’s AI agent scours online marketplaces — including Amazon — to find the best deals for users. But Amazon argues Comet’s browsing violates its site’s terms and diminishes the “customer experience” by obscuring the company’s branding and sponsored results.

The underlying issue is money. Amazon earned $17.7 billion from digital advertising in Q3 2025 — a 24% year-over-year increase. AI shopping bots like Comet threaten that lucrative stream by bypassing ads and sponsored listings. In its response, Perplexity accused Amazon of “bullying,” claiming the company prioritizes ads and upselling over consumer choice.

AI Agents: Threat or Opportunity for Amazon?

Ironically, Amazon’s CEO Andy Jassy has expressed optimism about AI-powered shopping agents. On the company’s Q3 2025 earnings call, Jassy noted that AI could “expand the amount of shopping that happens online.” He added that customers will ultimately choose the retailer that offers “the broadest selection, great value, and fast delivery.”

However, AI-driven platforms could weaken Amazon’s grip on digital advertising and customer data — two pillars of its business model. While Amazon is using legal action to assert control, the rise of AI shopping tools may reshape e-commerce in ways even the tech giant can’t fully predict.

AWS and Cloud Momentum

Amazon Web Services (AWS), the company’s most profitable segment, grew 20.2% year-over-year in Q3, beating expectations. Concerns about AWS losing market share to Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) appear overblown — especially after OpenAI signed a $38 billion cloud deal with Amazon. This partnership reinforces AWS’s credibility and highlights its growing role in the AI infrastructure space.

As businesses race to deploy generative AI tools, Amazon’s cloud division stands to benefit from increased data processing demand. With AWS already contributing the majority of the company’s operating income, its resurgence bodes well for long-term investors.

Grocery Expansion and Faster Delivery

Beyond AI and cloud computing, Amazon continues to expand its grocery operations. The company has launched its own private label grocery brand and is extending delivery services to rural markets. Same-day and three-hour delivery options in select cities are enhancing customer loyalty and creating a strong moat against traditional retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT).

These efforts are not just about convenience — they’re about increasing Amazon’s share of essential household spending. A stronger grocery presence helps diversify Amazon’s revenue beyond electronics and e-commerce.

Profit Margins and Cost Discipline

Since its 2022 cost-cutting campaign, Amazon has transformed into a margin expansion story. Operating margins reached 12% in the latest quarter, a major improvement driven by layoffs, warehouse optimization, and AI automation.

The company’s use of AI to streamline logistics and manage inventory has reduced operational waste. Analysts believe this efficiency trend could continue into 2026, further improving profitability even as growth moderates.

The Future of Prime and Digital Ads

Amazon’s Prime Video is evolving into an ad-supported platform — a key growth area for digital advertising. The company has begun cracking down on account sharing, a strategy similar to Netflix (NASDAQ:NFLX). Live sports broadcasting through Prime Video has also become a significant advertising opportunity.

During Q3 negotiations, Jassy noted that advertiser demand for Prime placements “exceeded our expectations,” signaling that streaming ads could soon rival traditional TV spots in value. Even as Amazon fights to control external AI agents, it’s finding new ways to monetize its own ecosystem.

Should Investors Buy Amazon Stock?

Following Amazon’s strong Q3 performance, analysts have raised their target prices. The consensus Street-high target now sits at $335 per share, roughly 34% above its early November levels. The company’s balanced growth across e-commerce, AWS, advertising, and grocery supports a compelling investment thesis.

At a forward price-to-earnings (P/E) ratio of 35x, Amazon may appear expensive — but that valuation reflects its dominant market position and long-term AI potential. For investors with a multi-year horizon, AMZN stock offers both growth and stability amid the evolving digital economy.

The Bottom Line

While Amazon’s feud with Perplexity highlights the growing tension between AI innovation and platform control, it also underscores how essential AI has become to Amazon’s future. The company’s legal stance is about preserving ad revenue, but its broader AI strategy — from cloud infrastructure to personalized shopping — suggests it’s still on the offensive.

For investors, the key takeaway is clear: Amazon isn’t just defending its dominance; it’s redefining it. Whether through AWS, grocery expansion, or AI-driven efficiency, Amazon stock remains a buy for those betting on the next wave of digital transformation.

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