Investors Should Consider Amazon Stock Amid Current Market Volatility
Growth stocks typically thrive during economic booms, when spending and expansion are at their peak. However, they often face the brunt of downturns during uncertain times.
This scenario has played out recently as President Donald Trump’s tariffs on imports raised fears about rising prices in the United States. Such concerns have led investors to reconsider their positions in growth stocks, given the potential economic headwinds facing these companies.
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As a result, the Nasdaq Composite (NASDAQINDEX: ^IXIC) has fallen into correction territory, dragging some leading stocks down to very attractive valuations. This presents a unique opportunity for investors to acquire high-quality growth companies poised for long-term success at a discounted price.
Below, we’ll focus on one such stock that has seen a 12% decline over the past three months that may be worth buying.
Image source: Getty Images.
Amazon: A Familiar Name
Most investors are likely familiar with Amazon (NASDAQ: AMZN). Whether for groceries or entertainment, this e-commerce giant is part of daily life for many. Amazon’s extensive selection includes everything from household essentials to entertainment packages for Prime members, remaining resilient regardless of economic conditions.
This diversity has helped Amazon maintain a strong earnings history, generating billions in revenue each quarter while steadily improving return on invested capital. This metric indicates that Amazon is significantly investing in its e-commerce and cloud computing sectors, showing robust financial health.
AMZN Return on Invested Capital (Annual) data by YCharts.
Currently, Amazon’s stock is facing downward pressure due to investor worries about higher operating costs tied to tariffs. This, compounded with potential decreased consumer spending on discretionary items, adds to the current uncertainty.
Adapting to Cost Challenges
However, there are compelling reasons to consider buying Amazon during this dip. The company previously faced inflationary pressures but successfully overhauled its cost structure, transitioning from an annual loss in 2022 to profitability the following year.
This restructuring has allowed Amazon to grow, with last year’s revenue jumping 11% to $638 billion and net income nearly doubling to $59 billion. Should tariffs continue to pose challenges, these strategic adjustments—such as utilizing artificial intelligence (AI) to improve efficiency in fulfillment centers—may help minimize their impact.
Moreover, Amazon has optimized its inventory distribution by placing stock closer to consumers, which reduces delivery costs. Even amidst tougher economic conditions, this strategy helps maintain control over expenses.
Proven Resilience and Future Growth
It’s also vital to note the stability of Amazon Web Services (AWS), which demonstrated resilience during previous inflationary periods. Although consumer spending may have decreased, AWS maintained steady revenue growth, with clients focused on developing AI platforms. This could further enhance AWS’s prospects, as it continues to expand its AI offerings, reaching a $115 billion annual revenue run rate last year.
With these considerations, Amazon’s stock appears reasonably priced at 30x forward earnings estimates, a significant drop from over 50x just over a year ago, making this an opportune entry point.
While economic challenges could arise in the coming months, Amazon’s revamped cost structure and diversified operations should help buffer against significant earnings impact. This offers a hopeful outlook.
Is Investing $1,000 in Amazon Wise Now?
Before committing to Amazon shares, consider this:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
The views expressed herein are solely those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
