Source: PaxForex Premium Analytics Portal, Fundamental Insight

Amazon stock hit an all-time high of $186.57 on July 8, 2021, during the COVID-19 pandemic, when consumers were forced to stay home and rushed to the e-commerce giant for necessities. Since then, the company's stock has fallen 50 percent, hurt by a stock market sell-off in 2022. Amazon has been particularly hard hit as rising inflation has led to lower consumer spending.

Investing in Amazon, which holds a large share of the e-commerce and cloud computing market, seems like a no-brainer. But as the likelihood of a recession in 2023 increases and Amazon's cloud computing business slows growth, other companies' stocks look more attractive.

That's why it's worth refraining from investing in Amazon, despite the significant decline in its share price.

On Oct. 27, Amazon released its earnings report for the third quarter of 2022. Revenue rose 14.7% year over year to $127.1 billion, $370 million below analysts' expectations. Operating income was down 48% from a year ago, from $4.8 billion in the third quarter of 2021 to $2.5 billion in the third quarter of 2022. The e-commerce business accounted for most of the decline, with revenue in the international segment dropping 5% to $27.7 billion.

While revenue in the North American segment rose 20% to $78.8 billion, the company posted an operating loss of $412 million. The data sent Amazon stock down 20 percent within 24 hours as investors lost confidence in the company's prospects.

Shares of consumer-dependent companies in various industries have suffered from declining earnings throughout the year. Amazon, however, appears to be in a much worse position than its competitors. When it comes to free cash flow, Amazon reported a negative $4.97 billion as of Sept. 30. By comparison, Microsoft had $63.3 billion, Walt Disney had $1.37 billion, and even Netflix was on the plus side with $471.9 million. Amazon is clearly losing money as it makes up for its losses in 2022.

In the third quarter of 2022, e-commerce accounted for 83.8 percent of the company's revenue. Given that Amazon could be facing a recession and further decline in 2023, the company could be playing catch-up for the foreseeable future.

Amazon's likely temporary decline in its e-commerce business wouldn't be such a big deal if its Amazon Web Services (AWS) cloud computing service wasn't experiencing a growth slowdown. In the third quarter, the cloud computing segment grew 27% year over year to $20.5 billion and generated the company's only positive operating income of $5.4 billion. While growth was a bright spot this quarter, it is also a concern compared to segment growth of 33% in Q2 2022 and 39% a year ago in Q3 2021.

As of Q3 2022, AWS had a 34% market share in the $217 billion cloud computing industry, while Microsoft's Azure had 21%. According to Grand View Research, cloud computing is a lucrative market with an expected compound annual growth rate of 15.7% through at least 2030.

AWS' dominant market share at the moment is a positive factor. However, with Microsoft's free cash flow significantly larger, Windows is better positioned to invest heavily in Azure and take the cloud computing crown away from Amazon in the coming years. Moreover, Microsoft CEO Satya Nadella said on Nov. 16 that the company is building more data centers in Asia, calling it a "huge growth market."

Amazon is unlikely to fall forever. The company is a household name and the first place most people go shopping online. However, given the possible further decline of the company's business and a price-to-earnings ratio of 85, Amazon stock remains too expensive to invest in even amid a stock market sell-off.

As long as the price is below 104.00, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 93.13
• Take Profit 1: 85.00
• Take Profit 2: 75.00

Alternative scenario:

If the level of 104.00 is broken-out, follow the recommendations below:    

• Time frame: D1
• Recommendation: long position
• Entry point: 104.00
• Take Profit 1: 114.00
• Take Profit 2: 120.00