Because Amazon (NASDAQ: AMZN) is a component of the “Magnificent Seven,” investors are naturally curious about the state of the company over the next year. The conglomerate built itself on pioneering two key industries and, with secular growth continuing in those businesses, has wisely positioned itself to prosper in nearly any economic environment. Amid such conditions, its long-term success is likely to continue.
Still, its near-term prospects are more uncertain. With a market cap of about $2 trillion and a falling valuation, Amazon appears to be in the process of becoming a mature company. Does that mean investors should buy now, or should they wade through the near-term uncertainty before adding shares?
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Image source: Amazon.
Concerns about Amazon
Admittedly, investors may feel disappointed about Amazon’s performance in recent months. Over the previous year, the stock has made no net gains, and it has fallen by more than 25% since peaking in early February.
That pullback has dramatically reduced its valuation premium. Its P/E ratio, which was above 100 two years ago, has fallen steadily and now stands at 30.
In past years, one might have assumed that that relative discount made the stock a buy. Nonetheless, Amazon’s massive size may not be the only reason for its compressed multiple. The company just released its earnings report for the first quarter of 2025, and that brought to light some near-term challenges.
Online sales growth slowed to 6% yearly in Q1 when it grew at 7% in the year-ago quarter. Investors have become accustomed to the fast growth of its cloud computing arm, Amazon Web Services (AWS). Still, its yearly growth fell slightly to 17% in Q1 versus 18% in 2024.
Also slowing is its third-party seller services business. After consistently posting percentage growth in the double-digits, its growth slowed to 7% annually in Q1. Adding to the uncertainty are tariff concerns, as those are likely to affect online sales and third-party seller services.
Reasons to keep the faith in Amazon
However, it is unclear how tariffs will ultimately affect sales. Dozens of countries are reported to be in the process of renegotiating trade deals with the U.S. That alone may be a reason that tariffs are only a short-term headwind.
Moreover, Amazon is the No. 1 e-commerce company and cloud provider, and both industries are on track for further growth. Grand View Research forecasts a compound annual growth rate for the e-commerce industry at 19% and cloud computing at 20% through 2030. Hence, even if Amazon’s massive size and the law of large numbers could hamper high-percentage growth, it shows the company’s expansion continues.
Despite slowing net sales growth, its net income in Q1 was $17 billion, a 64% increase from year-ago levels. During that time, its operating margin improved to 11.8% versus 10.7% one year ago as the company kept its costs and expenses in check. Thus, the stock may not be in as much trouble as the falling net sales growth rates might imply, possibly making Amazon a value stock at its current earnings multiple.
Amazon stock in one year
Considering the state of Amazon’s stock, it is likely to rise over the next year. The relatively low P/E ratio does not make the company a buy by itself, and the slowing net sales growth should concern investors. But with upcoming trade deals, the tariff concerns will probably not impact the stock as significantly one year from now.
Additionally, Amazon’s two main industries are likely to continue growing rapidly for the rest of the decade. Thus, even if its profits do not match that growth rate in the first quarter of 2026, investors should benefit from considerable profit growth. Such conditions make it more likely than not that Amazon stock will be significantly higher one year from now.
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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. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
