US-China Trade Agreement Boosts Amazon Amid Tariff Reductions

A brewing trade war between the United States and China has, for now, eased following an agreement that temporarily reduces tariffs imposed by both nations. E-commerce leader Amazon (NASDAQ: AMZN) saw a positive reaction from investors, as over half of the goods on its site originate from China.

1. Tariff Relief Offers Immediate Benefits

The recent trade agreement indicates a strong commitment from both countries to avoid an extensive trade war, which could adversely impact their economies. According to Statista, more than 70% of Amazon’s products come from China. Extended tariffs, which reached as high as 145% before this agreement, would have led to increased prices and potential shortages for merchants looking to restock.

The new deal reverses tariffs for 90 days, lowering the U.S. tariff on China to 30%. Although this might still affect prices, the reduction may not drastically deter consumer spending.

While there is no certainty that tensions won’t re-escalate, this move is a significant step toward stabilization and gives companies like Amazon time to adapt to potential challenges ahead.

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2. Strong Cloud Computing Growth

Amazon Web Services (AWS) may account for less than 20% of first-quarter 2025 revenue, yet it is responsible for over 62% of the company’s operating profits. The cloud segment serves as a major growth driver for Amazon, with sales rising by 17% compared to the previous year, only slightly behind the 18% increase in its advertising unit during the same period.

Critics of AWS cite its growth as falling short of analyst projections, yet this view shifts when considering the broader context. Amazon leads the global cloud market, holding approximately 30% of it, and is poised to play a key role in the expanding field of artificial intelligence (AI), predominantly utilizing cloud technology.

Future Market Insights projects that the hyperscale cloud services market will expand to over $765 billion by 2035, representing an annualized growth rate of 11.6%. Amazon Bedrock is an example of Amazon’s focus on AI, allowing cloud users to create AI applications using various foundational models seamlessly. These applications operate on AWS, showcasing its integral role in future developments.

3. Compelling Value in Amazon’s Stock

Despite recent momentum, Amazon’s stock remains an attractive option for long-term investors. Currently, it trades at a price-to-earnings (P/E) ratio of 34, with analysts forecasting an average annual earnings growth of 19% in the long run. This results in a price/earnings-to-growth (PEG) ratio below 2, which is generally perceived as favorable for high-quality stocks.

Amazon’s valuation reflects its robust fundamentals and anticipated earnings growth. Investors can trust that Amazon will continue to thrive, as its core segments show significant potential for expansion. E-commerce currently makes up only 16% of total retail spending in the U.S., offering ample room for growth in groceries, healthcare, and major purchases like automobiles.

The digital advertising sector, which generated $56.2 billion in revenue last year, also experienced an 18% year-over-year growth in the first quarter. Analysts believe it could evolve into a $100 billion segment by 2030.

Conclusion: A Smart Long-Term Investment

Amazon’s relentless pursuit of growth and innovation has positioned it as one of the largest companies and most successful stocks globally. Investing in Amazon is likely a wise decision for those considering a long-term strategy.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Justin Pope has no positions in any stocks mentioned. The Motley Fool recommends Amazon and has a disclosure policy.

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