As a member of the “Magnificent Seven,” Amazon (NASDAQ: AMZN) draws keen interest from investors regarding its outlook for the upcoming year. The company has established itself by innovating in two major sectors, benefiting from continued growth and positioning effectively for various economic conditions. This strategic groundwork suggests that Amazon’s long-term success is likely to persist.

However, short-term prospects are becoming murky. With a market capitalization near $2 trillion and a declining valuation, Amazon appears to be transitioning into a mature phase. This raises a crucial question for investors: Should they invest now or wait to navigate the immediate uncertainties?

Current Performance Concerns

Recent months may have left investors feeling discontented with Amazon’s performance. Over the last year, the stock has remained stagnant, dropping over 25% since its peak in early February.

This downward trend has significantly compressed its valuation, with the P/E ratio declining from over 100 two years ago to its current level of 30.

Once, a relative discount in valuation might have signaled a buying opportunity. However, concerns extend beyond just size; Amazon’s recent earnings report for the first quarter of 2025 highlighted several near-term challenges.

In Q1, online sales growth slowed to 6% compared to 7% in the same quarter last year. Additionally, Amazon Web Services (AWS), which investors have come to view as a primary growth driver, experienced a slight drop in annual growth to 17% from the prior year’s 18%.

Moreover, third-party seller services have seen a decline as well, with growth slowing to 7% annually in Q1 after consistently posting double-digit increases. Tariff concerns further complicate matters, likely impacting online sales and third-party services.

Reasons for Optimism

While the exact impact of tariffs remains uncertain, ongoing negotiations between multiple countries and the U.S. may suggest that these tariffs are likely a short-term hurdle.

Importantly, Amazon remains the leading player in both e-commerce and cloud services, industries predicted to grow substantially. According to Grand View Research, the e-commerce sector is projected to expand at a compound annual growth rate of 19%, while cloud computing is set to grow by 20% through 2030. This suggests that even if Amazon’s growth slows, the company’s expansion trajectory is likely to continue.

Despite the decrease in sales growth, the net income for Q1 reached $17 billion, representing a 64% increase from the same period last year. The operating margin also improved to 11.8%, up from 10.7% a year earlier, indicating effective cost management. As a result, Amazon’s stock may present a compelling value proposition at its current earnings multiple.

Amazon’s Stock Outlook for the Coming Year

Looking ahead, Amazon’s stock is poised for potential appreciation over the next year. While the low P/E ratio alone does not constitute a buy signal, the slowdown in net sales growth is a valid concern for investors. However, forthcoming trade agreements could mitigate the impact of tariff issues over time.

Furthermore, with both of Amazon’s core industries likely to maintain aggressive growth throughout the decade, even if profits do not keep pace in early 2026, significant profit growth remains achievable. Thus, it seems probable that Amazon’s stock will be significantly higher a year from now.

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