Why Investors Shouldn't Hit the Brakes on Amazon Stock (AMZN)

Business Insider

10 hours ago

Amazon (AMZN) shares have climbed rapidly over the past three months as market sentiment has gradually shifted back to a more consistently bullish stance, driven by a better balance between risk perception and growth expectations, especially in tech, supported by secular AI growth trends.
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Amazon has embraced this trend, with AWS playing an increasingly vital role in driving the company's profitability each quarter. Its ability to sustain strong margins—even during periods of heavy capital investment—remains a cornerstone of Amazon's long-term growth narrative.
In addition, Amazon's valuation multiples remain relatively compressed, which could support continued bullish momentum, particularly as concerns around U.S. consumer spending ease and tariff-related risks begin to subside. Given these factors, Amazon stock merits a Buy rating, with the potential for stronger trading performance in the second half of the year.
Amazon's Midyear Snapshot
So far this year, Amazon's stock performance has been pretty muted. Despite trading flat year-to-date, shares of the e-commerce giant actually fell as much as 24% in April, at the height of the market panic over Trump's tariffs, but have since gradually recovered, even though the stock is still underperforming the broader market.
Unlike other mega-tech peers like Microsoft (MSFT), Nvidia (NVDA), and Meta (META) —which have been the top performers in the Magnificent Seven so far this year—I think Amazon has been stuck in a kind of frenzied limbo for a few specific reasons, but also shielded from deeper bearish sentiment.
Consider the AI story, which is central to investor optimism, particularly through Amazon Web Services (AWS). The company continues to lead among hyperscalers, posting solid revenue growth in its most recent Q1 results (up 17% year-over-year) and maintaining operating margins of nearly 40%. In fact, although most of Amazon's total revenue still comes from its e-commerce business, about 62% of its profits come from AWS, according to TipRanks data.
But precisely because e-commerce is (still) the company's core business when it comes to top-line revenue, the spike in tariff concerns hit Amazon's risk perception much harder than it did peers like Microsoft or Meta. The clearest sign of this is how Wall Street has trimmed its estimates over the last six months for at least the next five years.
For example, at the start of 2025, revenue growth expectations for the current fiscal year (now at about 9% year-over-year) were 1.6% higher. For 2026 (now projected at 9.7% growth) and 2027 (9.8%), forecasts were 2.5 and 2.3 points higher than they are today. The same thing happened with EPS estimates for 2026, which are now expected to grow 17.2% year-over-year—about 3.3 points lower than they were, at $7.29 for next year.
For investors considering a position in AMZN, the forthcoming earnings call at the end of July could be significant as analysts expect AMZN to report EPS of $1.31 with estimated revenues of ~$161 billion.
The Next Phase of Amazon's Growth Story
In my view, since Amazon is such a diversified business that's performed well across pretty much every segment, I see the recent pullbacks as being driven far more by macro headwinds (like higher rates compressing tech stock multiples, potential threats like DeepSeek eating into AI spending, and the ongoing tariff and trade war chatter) than by any real company-specific weakness.
Naturally, these shifts in risk perception around big-picture factors tend to trim market projections and analyst estimates. Amazon always sets a high bar, and the mere idea that AWS can continue to grow but might face tougher margin comparisons ahead is enough to keep the near-term outlook a bit more muted. Still, it's worth remembering that Amazon's stock is still up more than 155% since the start of 2023, thanks mainly to AWS's explosive growth fueled by the AI boom.
Looking ahead, now that many companies have wrapped up significant cost-cutting efforts and are refocusing on new initiatives, price competition could intensify—and that could put pressure on margins. The good news, though, is that this squeeze hasn't really shown up yet. When AWS margins dipped from 38.1% in Q4 to 36.9%, they quickly bounced back to 39.5% in Q1. Even Amazon's management has made it clear that margins will likely fluctuate as the company continues to pour billions into AI infrastructure.
I believe the medium-term trend is for AWS's operating margin to remain steady or even increase, supported by the shift toward higher-value services and the benefits of growing scale. That alone should help sustain much of the optimism around Amazon's growth story, especially through the back half of the year. Add to that Amazon's ongoing push to expand its ads business—plus the fact that trade-down behavior among U.S. consumers is already more priced in—and there's still a solid case for steady upside from here.
Where Amazon Stands on Valuations and Momentum
To put it into perspective, even though Amazon's stock has regained momentum since April and it's not trading anymore at its lowest price-to-cash-flow multiple of the past decade, it's far from expensive by its own standards. Right now, the stock trades at about 20x cash flow, well below the 40x-plus peak it hit back in 2022, and still around 18% below its average over the last five years.
You see the same story with its EV/EBITDA multiple, which stands at 19x—roughly 26% below its historical average. In my view, these compressed multiples reflect not only greater uncertainty surrounding the entire tech sector and the U.S. economy but also the reality of Amazon's substantial capital investments and the gradual maturation of its core business.
That said, I think mega-tech stocks like Amazon are driven above all by momentum. For investors seeking more attractive risk-adjusted returns, buying when the trend is turning bullish typically yields better results than trying to catch falling knives during deep corrections.
Since the end of May, Amazon's share price has climbed back above its 200-day moving average, which sits around $205 per share, while the stock trades closer to $218. So, in my view, this might still be a good time to go long on Amazon for the long haul, even if the recent rebound has already captured much of the easy short-term upside.
What is Amazon's Target Price in 2025?
Of the 48 analysts who've covered AMZN stock in the past three months, 47 have a bullish rating, with just one analyst recommending a Hold. On top of that, AMZN's average stock price target is currently $243.32, implying about 11% upside from the stock's latest share price over the next twelve months.
Amazon's Quiet Comeback Is Gaining Steam
Since tech stocks run on momentum, I believe Amazon's recent bullish comeback indicates that, even amid a challenging macroeconomic environment, the market has largely priced in the risks surrounding its e-commerce business, while AWS continues to ride the growth wave.
This suggests that Amazon might currently be conservatively valued, making it a good opportunity to go long while multiples are still compressed, especially given these trends are likely to persist into the second half of 2025.