(FORTUNE Magazine) – This year's stock market carnage has not only been depressing but also bizarre. Warren Buffett is buying telecom stocks. SEC chairman Harvey Pitt wants a raise. And--get this--the best-performing stock on the Nasdaq 100 this year is--Amazon.com. That's no misprint. Amazon.com (AMZN, $14), the company whose fortunes became synonymous with the euphoria and despair of the Internet bubble, has seen its stock rise 32% this year and is increasingly convincing investors that steady gains are here to stay.

There's actually nothing bubble-esque about why the market is warming to Amazon again. After losing faith last year that the seven-year-old company would ever make money, investors are coming to realize that founder and CEO Jeff Bezos actually knows how to run a business. With a combination of innovative productivity enhancements and shrewd marketing, he and his team have reduced operating expenses 32% in the year ended June 30 while increasing revenues 17%.

A big chunk of the savings has come from running the company's warehouses more efficiently and switching most of its computer operations from Sun machines to the less expensive Linux operating system running on Intel-powered servers. Meanwhile, Bezos's idea last year of selling used goods on the same page as new items and of cleverly offering free shipping on purchases over $49 has boosted revenues beyond most expectations. Amazon now forecasts revenue growth this year to be north of 18%, up three percentage points from its earlier estimate.

Amazon still isn't profitable and probably won't be for a while. Part of the reason is the company's recent decision to expense stock options (see story on previous page). But this year, for the first time, it is expected to take in more cash than it uses. By the end of 2002, in fact, analysts expect the company to be generating enough cash to pay the interest on its onerous $2.2 billion debt load and still have a little left over. "A year ago investors wouldn't touch Amazon with a ten-foot pole. Now for many it's all they want to talk to me about," says Safa Rashtchy of Piper Jaffray, who has a price target of $17 on the stock. Indeed, big mutual funds like Fidelity and Janus are loading up on it, while short-sellers, who gloated as it hit $6, have now covered their positions.

Still, Amazon remains one of the most controversial stock picks out there. And in many ways the debate hasn't changed. Supporters, such as value czar Bill Miller, whose Legg Mason Value Trust now owns 18% of Amazon's shares (see "It's Bill Miller's Time," Dec. 10, 2001 on fortune.com), say it is well on its way toward creating an entirely new and better business model for retailers--the customer service of a Nordstrom with the pricing power of Wal-Mart. Detractors counter that Amazon is nothing more than an interactive catalog company. Its biggest business, books, has notoriously low-margins. And, like many retailers, it hasn't been able to get around the problem of what to do with warehouse capacity outside the Christmas season.

One thing, however, is now clear: Amazon is going to be around long enough for everyone to figure out which camp is right--and to make investors money in the meantime. --Fred Vogelstein