Is Amazon’s Meteoric Rise Sustainable?
A Year of Unprecedented Growth
Amazon’s stock has been on a tear, with a staggering 81% gain in 2023 and a projected 50% increase in 2024. This e-commerce and cloud services giant has left many investors wondering if they should jump on the bandwagon in 2025.
The Case Against Amazon
One major concern is the stock’s valuation, which is trading at nearly 36 times forward earnings, making it the second-most expensive “Magnificent Seven” stock. Additionally, economic uncertainty looms large, with the Federal Reserve hinting at potential interest rate cuts in 2025. This could spell trouble for Amazon if consumer spending declines.
Tariffs and AI: Potential Roadblocks
The impact of steep tariffs promised by President-elect Trump could lead to higher product prices, causing inflation to rise and consumer spending to decline. Furthermore, the artificial intelligence (AI) boom that boosted Amazon Web Services (AWS) may be slowing down, according to Alphabet and Google CEO Sundar Pichai.
A More Nuanced View
However, Amazon’s earnings multiples have been higher in the past, and the company’s earnings and free cash flow are growing more robustly than ever. In Q3 2024, Amazon reported earnings of $15.3 billion, up nearly 55% year over year, and free cash flow nearly tripled to $44.9 billion.
Long-Term Prospects
CEO Andy Jassy predicts a significant shift in the cloud services market, with AWS poised to benefit from this trend. Additionally, Jassy believes that e-commerce will continue to grow, with Amazon leading the charge. OpenAI CEO Sam Altman also disagrees with the notion that AI progress is slowing, citing the potential for AI agents to be the next big thing.
Should You Invest in Amazon?
While no one can predict the future with certainty, the chances are good that Amazon stock will increase in 2025. However, if you’re looking for income, Amazon may not be the best choice since it doesn’t pay dividends. But if you’re seeking growth and have a long-term perspective, Amazon remains an attractive option.
Don’t Miss Out on the Next Big Thing
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