Why Amazon Pulled Back Today
What happened
Shares of Amazon (NASDAQ: AMZN) were falling on Friday, down as much as 3.2% at one point on the day.
Amazon has had a pretty strong year, with a 72.3% gain year to date even after today's pullback. So, it was perhaps not surprising that the stock fell amid not one but several negative headlines hitting the tape all at once this morning.
These included a new consumer-sentiment reading, notes from analysts on a potential Federal Trade Commission (FTC) lawsuit, and a negative rumor regarding semiconductor demand, which could indicate a slowdown in cloud business growth.
So what
Amazon is a large and far-reaching company highly sensitive to consumer demand. While its cloud-computing platform, Amazon Web Services (AWS), depends on demand from enterprises, about 70% of U.S. gross domestic product (GDP) comes from consumer spending, so AWS is indirectly dependent on customer spending too.
Part of the reason Amazon may be selling off today could be today's release of the widely observed University of Michigan Consumer Sentiment survey. The early September survey showed a greater-than-expected decline of 1.8 points to 67.7, whereas economists were predicting a reading of 69, relative to last month's 69.5 mark.
The components of the index weren't all bad, and the index is still much higher than the 58.6 reading in September of last year. Importantly, expectations for near- and long-term inflation continue to tick down as well. Still, the overall mixed reading may have soured some investors on consumer-related stocks.
Also today, Reuters reported that Taiwan Semiconductor Manufacturing (NYSE: TSM) asked some equipment suppliers to delay shipments, citing cautious demand. That may not be an Amazon-specific problem, as TSM is the largest chip foundry in the world, manufacturing chips for a variety of products and sectors. But TSM does produce Amazon's in-house designed chips Graviton, Inferentia, and Trainium. And of course, TSM's comments could mean lower demand for other third-party data-center chips AWS uses too, indicating continued soft cloud demand.
Finally, Amazon actually received a positive analyst note today from Wedbush Securities, but that analyst did discuss a potential FTC suit the government is preparing to file. The suit is likely centered on Amazon's practices with respect to third-party sellers, which have been an incredible source of service and advertising-revenue growth for Amazon. So, investors may also be skittish about that. However, it had already been reported earlier this month that the FTC was preparing to file a lawsuit, so that may not be the biggest reason behind today's decline.
Now what
All in all, it was a lousy day for stocks in general and especially technology stocks, many of which were down more than Amazon.
Amazon has had a terrific year, but it is still below its all-time highs set in 2021. Meanwhile, the company has used this period of weaker e-commerce demand to improve and streamline its operations, especially with regards to logistics and delivery. In fact, the company even rolled out a brand new service, Supply Chain by Amazon, earlier this week, which expands Amazon's delivery service to encompass entire supply chains, not just delivering to an end customer's home.
Improving service and innovating on behalf of third parties will probably make a potential FTC lawsuit difficult to win for the government, although it may still try anyway.
Regardless, I'd agree with the Wedbush analysts that any pullback from an official FTC announcement could be a buying opportunity. Amazon's innovations continue to lower prices and improve service for customers, so it's unlikely any consequences will be onerous. Meanwhile, the company is still riding the longer-term growth drivers in e-commerce and cloud computing.
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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. Billy Duberstein has positions in Amazon.com and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Amazon.com and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
