Amazon.com Inc (NASDAQ: AMZN) posted one of its strongest years yet in 2024 by virtue of its operating income, which rose 61% year-over-year. Recently, however, its stock has dipped considerably, and began the year with a rather peculiar six-week losing streak.
The all-time high of $242.42 attained on Feb 4 certainly sent shockwaves across the market, but since then, the e-commerce behemoth’s shares have plummeted nearly 20%.
Now this begs the question, is Amazon’s ongoing downturn a cause for concern or should investors put their money where their mouth is and buy?
Why is Amazon Tumbling?
Surprisingly enough, Amazon’s recent dip isn’t because the e-commerce and cloud computing juggernaut is doing something wrong. Rather, the pressure on Amazon shares comes from a combination of factors, namely stiff competition and regulatory intervention.
Raking in $28.79 billion in sales for Q4 2024, AWS (Amazon Web Services) is still Amazon’s most profitable offering, and by a mile. Overall, the unit maintained a solid year-over-year growth rate at 19%.
Impressive as these numbers are, they’ve only prompted competitors Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) to tighten their belts and up the tempo.
In 2022, AWS held a respectable 34% share of the cloud computing market. Fast forward to today, and that figure has dropped to 31%, with Microsoft’s Azure (23%) and Alphabet’s Google Cloud (11%) well within striking distance.
Amazon’s case hasn’t been helped by the fact that both Microsoft and Alphabet are looking to ramp up their AI and cloud infrastructure investments through 2025 and beyond. As we speak, Microsoft has already announced plans to inject $80 billion into the creation of cloud data centers that would specifically handle artificial intelligence workloads.
Meanwhile, Alphabet is planning to hike capital investments to $75 billion this year, a move the behemoth says will extensively grow its cloud AI capacity. Further expert projections place Microsoft Azure as the overall cloud leader by 2026, but whether or not that’ll materialize remains to be seen.
As if Amazon doesn’t already have enough on its plate, the e-commerce giant is staring at a possible legal onslaught spearheaded by the Federal Trade Commission. Initially launched in 2023, the FTC complaint puts Amazon at the center of a deceptive practices case, alleging a consumer was unwillingly enrolled into Amazon Prime program.
Beyond that, the consumer found it hard to cancel the annual membership fee of $139. For the bears, these legal impediments are particularly concerning. This comes on the back of a broader September 2023 antitrust lawsuit that FTC leveled against the behemoth.
A Mammoth $100B Capital Investment for 2025
None of the major players in the cloud realm have invested quite as heavily as Amazon towards its AWS offering, and the giant isn’t planning to slow down anytime soon. Out of the $100 billion slotted for capital expenditures this year, a huge chunk of it will go into elevating AWS.
For Amazon’s management, building out AWS cloud infrastructure to meet the skyrocketing consumer demand for AI capabilities seems like a pretty solid investment at this point.
In Q2 2024 alone, Amazon saw a 18.8% top-line growth in its cloud segment, a 1.6% rise from Q1. It’s a move that has worked out superbly before. Amazon has a history of never minding forfeiting short-term profits if that means reaping big in the long haul.
In a way, this multi-billion AWS elevation plan provides a clue as to where Amazon stock is headed.
Building a Case for Amazon’s Possible Rebound
As early as this June, Amazon is set to launch a product similar to Open AI’s ChatGPT. Dubbed Nova, the model, Amazon says, will possess next-level reasoning prowess and will be available at only a fraction of the industry price averages.
Of course, any talk of Nova’s success is definitely speculative at this point, but this is something none of Amazon’s biggest competitors have given a serious go at.
In the meantime, on the advertising front, Amazon posted $17.3 billion in revenue for Q4 2024, representing a 18% year-over-year surge. That’s significantly higher than Microsoft and Alphabet’s ad revenue over the same period, both of which sit at 12% YoY.
Still on ad revenue, Amazon is looking to extend its wings to encapsulate new markets across Brazil, New Zealand, Japan, Netherlands, and India for its Prime Video ad tier. It’s also worth noting that before these plans were announced, specialists had still predicted a strong year for Amazon’s ad business, peaking at $69 billion in 2025.
E-commerce Growth Prospects
Amazon’s AWS and soon-to-be Nova might be grabbing all the headlines, but its e-commerce sector is equally deserving of a proper look-in.
With nearly 75% of Amazon US users being Prime members, it’s highly unlikely the giant will be dethroned as the king of ecommerce retail anytime soon. The behemoth accounted for 40.1% of all 2024 ecommerce sales, and while that’s a marginal increase from 2023, it’s an increase nonetheless.
Analysts say the figure will slowly but steadily rise through to 2028, despite heightened competition from new entrants Temu and Shein (popular for their unbelievably low prices).
Amazon’s same- or next-day delivery principle is largely helping to drive up the sales numbers. Given that the giant’s essentials segment is growing 50% faster than the rest of its e-commerce offering, Amazon only has to tighten its grip on this front to see sustained results.
Is Amazon Stock Worth Owning?
Yes Amazon is worth owning, and not a sell at this time despite recent roadbumps with none of the 46 analysts covering Amazon stock rate it as a Sell.
On the contrary, it’s a Buy, with a price target of nearly $265 over the next year. If you factor in the current market price of $194.95, it means you might be looking at an upside of about 35.89%.
Tying it all up, Amazon’s long-term stock prospects are quite solid, despite legal setbacks and utterly competitive cloud and e-commerce segments. With revenue and operating income likely to trend at consistently high levels for the foreseeable future, it doesn’t seem prudent for investors to lose faith just yet.
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