Amazon Faces Stock Decline Amid Mixed Growth Outlook

Amazon (NASDAQ: AMZN) reported strong growth recently, yet its stock fell last week due to its cautious guidance and concerns over tariffs. While Amazon is a vast enterprise with numerous components, current market sentiment is leaning towards the negative.

Market outlook is forward-looking, which can sometimes miss aspects of reality. Before analyzing the second quarter, it’s worth noting that although Amazon’s recent update may seem disappointing, the company often surpasses its own guidance, as seen in the first quarter. Looking ahead, this dip could represent a buying opportunity for investors.

Amazon’s Financial Performance: The Good and Bad

In its first quarter, 2025, Amazon exhibited solid performance. Sales rose by 10% year over year, reaching $155.57 billion, surpassing the top end of guidance of $155.5 billion. Operating income increased to $18.4 billion from $15.3 billion the previous year, also exceeding the guidance of $18 billion. Additionally, earnings per share (EPS) climbed to $1.59, up from $0.98 a year prior, greatly outpacing Wall Street’s expectation of $1.37.

Image source: Amazon.

However, the market fixated on the second-quarter predictions. Management forecasts a 9% year-over-year increase in sales but a drop in operating income. Amazon anticipates operating income between $10 billion and $17.5 billion, down from $14.7 billion last year.

Several factors influenced this outlook. CEO Andy Jassy noted the uncertainty surrounding tariffs, stating, “It’s hard to tell what’s going to happen with tariffs right now. It’s hard to tell where they’re going to settle and when they’re going to settle.”

Costs linked to the Kuiper broadband initiative also contribute to this cautious stance. However, Jassy emphasized that many short- and medium-term considerations align with Amazon’s long-term strategy regarding product selection and pricing.

Tariff Implications on Amazon’s Strategy

Jassy did not downplay the potential effects of tariffs during the first-quarter earnings call. He mentioned that, so far, consumer demand remains stable, with increased purchases in certain categories hinting at anticipated tariff impacts. He also highlighted several key advantages Amazon has in navigating this landscape:

• Amazon primarily sells essentials, which customers will continue to purchase despite external factors. In the first quarter, everyday essentials grew at more than double the overall business rate, making up one-third of products sold.
• As a major grocery provider, Amazon sold $100 billion in groceries last year, excluding Whole Foods and Amazon Fresh.
• The company boasts a vast product range, likely surpassing competitors, with over 2 million sellers. In times of market volatility, this positions Amazon to help consumers find affordable options.
• Consumers tend to shop from trusted stores during uncertain times. As Amazon enhances its delivery network and expands product offerings, it becomes an increasingly reliable source for essential goods.

Broader Initiatives and Future Opportunities

Amazon’s operations extend well beyond e-commerce. Jassy pointed to the opportunities in artificial intelligence (AI), noting, “More than 85% of global IT spending remains on premises, not in the cloud. It seems likely that this will change in the next 10 to 20 years.”

Amazon Web Services (AWS) reported a 17% year-over-year revenue increase in the first quarter, driven by both generative and non-generative AI. New partnerships with companies such as Adobe, Uber Technologies, and NextEra Energy contributed to a 22% rise in AWS operating income, which made up 63% of the total.

Investors focusing on long-term potential might see the dip in Amazon’s stock as a significant opportunity.

Investment Outlook: Why Now May be the Time to Buy

Following its recent earnings, Amazon’s stock price fell, yet its P/E ratio has remained stable near 30, thanks to rising earnings. This suggests that the market views Amazon’s valuation as fair, even amidst negativity surrounding guidance. Investors may perceive value in the company’s fundamentals that could support price recovery.

While market investments carry inherent risks, management’s optimistic position on tariffs and prospects for long-term growth could signal potential price increases for Amazon’s stock. Investors considering adding Amazon may find this a favorable moment.

Conclusion: A Potentially Lucrative Opportunity Awaits

Current market conditions might suggest that some investors feel they’ve missed their chance with Amazon. However, significant potential remains.

Opportunities for “Double Down” alerts on promising investments may arise, making it critical for investors to assess their options.

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