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?
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.
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.
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