Amazon has demonstrated a good revenue and profit expansion over the last couple of years having doubled its profits and the gains being enhanced by $200 billion. Nevertheless, with all these improvements, its share price has increased marginally. This misalignment has increased the concerns of the investors, particularly on the slowing growth of its most substantial division, Amazon Web Services (AWS).
AWS, which generates most of Amazon profits because of its large margins, experienced a slowdown in growth relative to competitors such as Microsoft Azure and Google Cloud during the last few years. Such a slower rate has raised concerns among investors that Amazon is losing its competitive streak in the rapidly developing cloud industry.
That is further complicated by the emergence of artificial intelligence. Although cloud computing demand is increasing due to AI, the competitors around Amazon are more integrated into AI solutions that are less complicated to be adopted by a customer.
The Amazon model would prove more technical, and hence less appealing. There are also economic threats such as inflation, tariffs, a poor labor market, which may result in low consumer spending levels and high expenses. Also, the e-commerce market is competitive, and the market size of this segment does not comprise more than a minor part of retail sales, which can constrain Amazon in this market.
Traditionally, the stock of Amazon was undergoing a down swing in the market which contributes to the wary investment attitude. It is still valued at the depth of approximately 34 times earnings. Although the continuous growth of the revenues of the company is a healthy indicator, minimal losses might trigger huge declines in the share prices. This renders the stock rather hazardous in near to medium term.
Investors who require lower risk will want to instead look at diversified portfolios such as Trefis Reinforced Value Portfolio. It averages big, mid and small cap stocks and adjusts to the market movements hoping to get the increases in the price and minimize the losses.
In general, the future of Amazon will be the pursuit against cloud dominance and management of economic and competitive issues. Until that time, the stock can be prone to volatility despite the good business fundamentals.
