Analyzing Amazon: Growth Potential and Emerging Risks for Investors

Amazon (NASDAQ: AMZN) has created substantial wealth for investors over the past twenty years. If you’re thinking about adding this stock to your portfolio, it’s essential to evaluate both the bullish and bearish perspectives before making any decisions.

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Positive Aspects of Amazon

Originally founded as an e-commerce platform, Amazon has transformed into a substantial technology conglomerate, with stakes in cloud computing, advertising, logistics, and more. This diversified business model provides Amazon with the ability to adapt swiftly to market opportunities.

On the growth front, Amazon’s varied business lines enable it to reinvest its profits effectively. For example, Amazon Web Services (AWS) started as an internal infrastructure to support its e-commerce operations. Today, however, AWS is the company’s most profitable segment, contributing 58% of Amazon’s 2024 operating income, despite accounting for only 17% of total revenue.

Similarly, Amazon has developed a robust advertising sector that generated $17.3 billion in revenue in Q4 2024. Although this represented only 9% of the total revenue for that quarter, its growth rate outstrips that of traditional e-commerce. The profitability of this advertising segment suggests a higher-than-average return.

This diversification helps sustain Amazon’s growth even when e-commerce figures dip, which is likely as the company matures. Additionally, a broad revenue base offers a cushion during tough times, like those seen in recent tariff disputes.

Even as a major player, Amazon remains well-positioned for future growth. Trends in artificial intelligence (AI), robotics, and other technologies may generate new opportunities, reminiscent of the way the internet fueled the growth of e-commerce, cloud services, and advertising.

With a strong balance sheet and vast user base, Amazon’s growth story is still evolving.

Concerns Regarding Amazon

While Amazon has delivered impressive returns historically, past performance does not guarantee future success. Investors should not assume that previous growth rates will continue to apply.

As one of the largest companies globally, Amazon generated $638 billion in revenue in 2024—second only to Walmart at $681 billion—and employed over 1.5 million individuals. Its substantial size could hinder future growth rates. In essence, while Amazon’s growth train is likely still moving, it may not travel as fast as it did in the past.

Challenges also loom for traditional e-commerce operations, especially amidst ongoing tariff issues. These tariffs increase costs for Amazon and its third-party vendors, particularly for those reliant on importing products from China, creating significant hurdles in the coming months.

The uncertainties surrounding tariffs complicate logistics and pricing decisions for merchants. At the very least, sellers will face tough adjustments to their supply chains. In a worst-case scenario, some may have to cease operations altogether if they can’t find alternative suppliers.

While Amazon’s diverse operations offer benefits, their complexity also brings risk. The company might attempt to expand too rapidly, which could weaken its foundational areas or lead to missteps in strategic initiatives like AI.

This execution risk is becoming increasingly palpable.

Investor Implications

Amazon stands out as one of the most formidable companies in sectors like e-commerce and cloud services. With megatrends such as AI and automation still in play, Amazon appears to have the resources and vision for continued innovation.

The trade-off is that Amazon’s sheer size might be a liability, resulting in slower growth and operational complexities. Coupled with tariff challenges, the appeal of its e-commerce sector may not be as strong as in the past.

In summary, although Amazon shows promising prospects, investors should prepare for a bumpy road ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.