Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors in Amazon have faced a challenging period, as the company's stock experienced significant highs during the COVID-19 pandemic but then suffered a sharp decline in 2022 due to broader economic challenges. However, the current year has shown signs of recovery, with the stock increasing by approximately 50% since January 1st. Despite this progress, it still remains 47% below its peak price of $186, which was reached in July 2021. This disparity suggests that Amazon may still have substantial growth potential in the future.
Considering these circumstances, it may be prudent to contemplate investing in this e-commerce behemoth before it becomes too late. However, before making any decisions, it is crucial to thoroughly evaluate both the positive and negative aspects of investing in the company.
Hence, presented below are the arguments for and against Amazon stock, from both the bullish and bearish perspectives.
To begin with, Amazon has experienced significant success through its cloud platform, Amazon Web Services (AWS), which has emerged as a dominant player in the market, capturing a 32% share. This growth has been fueled by its ability to cater to the digital needs of numerous businesses, establishing itself as a trusted provider of cloud services.
AWS has played a vital role in diversifying Amazon's revenue streams and fortifying its overall business. This became evident when Amazon's e-commerce segments reported operating losses of $10.6 billion, whereas AWS contributed significantly with an operating income of $22.8 billion, ensuring the company's profitability in the fiscal year 2022.
However, investors have expressed growing concerns about the deceleration of AWS's growth. While the year-over-year revenue growth for AWS reached 40% in the fourth quarter of 2021, it dropped to approximately 16% in the first quarter of 2023. The economic downturn has led to increased inflation and interest rates, prompting many businesses to reduce their cloud spending. Given Amazon's significant market share, it has been particularly affected by this decline.
Fortunately, there is some positive news on the horizon. Inflation has shown signs of easing for the past ten months, with the Consumer Price Index rising by 4% in May, the lowest level in two years following a peak of 9.1% in June 2022. As the situation improves, businesses are likely to have more financial flexibility, potentially leading to a boost in AWS's performance over the next year. Moreover, advancements in artificial intelligence (AI) are expected to further enhance the growth prospects of the cloud market as a whole.
Furthermore, the losses incurred by Amazon's e-commerce segments in the previous year were a cause for concern, especially considering that these segments contribute over 80% of the company's total revenue from its North American and international operations. However, the positive impact of easing inflation is already being felt in the retail business.
In the first quarter of 2023, Amazon's North American segment returned to profitability, generating $898 million in operating income. The international segment also showed a slight improvement. With the e-commerce business of Amazon back on a growth trajectory, the company's dominance in this sector strengthens the case for investing in its stock.
Amazon holds an impressive 38% market share in e-commerce in the United States, with Walmart following at a distant second with a 6% share. This substantial market position positions Amazon favorably as inflation rates improve and the overall market rebounds.
Moreover, the e-commerce market has yet to reach its full potential in the long term. According to Statista, the industry is projected to reach $4 trillion this year and grow by nearly 53% by 2027. With Amazon's consistent increase in Prime subscriptions and the growth opportunities it presents in multiple countries, the company holds excellent prospects for the next decade.
While Amazon's stock performance may not be as remarkable as that of tech rivals such as Apple and Microsoft, which have seen their stocks soar by over 230% in the past five years, Amazon remains a solid long-term investment option. Its leading market shares in cloud computing and e-commerce position it well for the future as these sectors continue to evolve. Additionally, the potential gains from the current surge in artificial intelligence and the strength of AWS further contribute to the optimistic outlook for Amazon's growth potential.
As long as the price is above 118.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 125.43
- Take Profit 1: 130.00
- Take Profit 2: 135.00
Alternative scenario:
If the 118.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 118.00
- Take Profit 1: 113.00
- Take Profit 2: 109.00
