Amazon Stock: Bear vs. Bull
Amazon (NASDAQ: AMZN) doesn't need any introduction. The e-commerce, cloud computing, streaming entertainment, and digital advertising behemoth has undoubtedly been one of the best success stories in corporate America in the past 20 or so years, and its shares have skyrocketed along the way.
But how should investors approach the tech giant right now? Here are the bear and bull arguments for this top FAANG stock that should help answer that question.
What the bears say about Amazon
I think the strongest bear case focuses on the ongoing threat of regulation. While this doesn't just apply to Amazon (its tech peers are also regularly in the spotlight), it's certainly something that seems to be an ongoing risk that investors just can't ignore. The company's dominance attracts the attention of regulatory agencies in the U.S. and Europe, and there's always the possibility that drastic rules are enforced that negatively impact how the business can operate. As Amazon gets larger, these concerns will only grow.
Amazon Web Services (AWS), the company's cloud computing unit, is one of the aspects of the Amazon machine that shareholders probably appreciate the most. In the latest quarter (Q2 2023 ended June 30), AWS accounted for 70% of overall company operating income. But growth is slowing. Revenue only climbed 12% in the most recent period, continuing a streak of decelerating gains. Management pointed to the softer macro environment, but increasing competition in the industry could also be a factor.
A difficult regulatory environment, coupled with slower growth in what has traditionally been a rapidly expanding segment in AWS, provides gasoline to the bear argument that says returns for Amazon's stock going forward won't resemble those achieved in the past. That's certainly a valid concern given this is already one of the largest companies in the world, with a market cap of nearly $1.5 trillion. With products and services that seem to be ubiquitous these days, it's hard to envision a scenario where Amazon can sustain double-digit revenue growth for several years into the future. Growth-minded investors will certainly hesitate to buy the stock if they believe this to be the case.
What the bulls say about Amazon
Amazon's bulls have some compelling reasons that make the business attractive from an investment perspective. For starters, the current valuation isn't too steep, even after the stock's rise in 2023. Shares trade at a price-to-sales ratio of 2.7, which is below the trailing-five-year average valuation. It looks like now is a good time to be a buyer of the stock.
Like its big tech peers, Amazon dominates in the industries that it operates in. It's the leading e-commerce site in the U.S. by an incredibly wide margin. AWS has a leading market share in the global cloud computing industry. And a newer business line, digital advertising, is finding so much success that Amazon only trails the two heavyweights in the industry, Alphabet and Meta Platforms. As far as internet-based companies are concerned, it's hard to find one that has such a profound impact on the daily lives of so many people and businesses.
Amazon wouldn't be so successful today if it weren't for the presence of an economic moat. The company benefits from tremendous scale, as exemplified by a huge logistics footprint and vast merchandise selection, that allows it to operate its massive e-commerce business. And with AWS, as more data is collected, Amazon can continuously find ways to improve existing services and launch new ones. It's hard for rivals to compete with these advantages.
Additionally, Amazon's data edge could become even more important in the future. The advent of artificial intelligence (AI) will only highlight just how critical it is for businesses who want to harness this technology to be able to collect, store, analyze, and protect the burgeoning amount of data out there. Thanks to AWS already proving that it has these capabilities, Amazon is in a prime position to be a leader in AI, which could propel the business to new heights.
In my opinion, the bullish case outweighs the bear arguments, making this a worthy stock that investors should consider buying right now.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Meta Platforms. The Motley Fool has a disclosure policy.
