The markets were already on edge with concerns regarding tariffs, and President Donald Trump’s “Liberation Day” tariff announcement sent them over the edge. While there could be some continued market pain, the sell-off has also brought some top growth stocks down to attractive levels.
One growth stock now down 25% to start buying right now is Amazon (AMZN -3.92%). Let’s look at why investors should be scooping up shares of the stock.
A market leader
Amazon is not only the world’s leading e-commerce company, it is also the world’s third-largest digital advertising platform and the largest cloud computing company.
Tariffs could very well hurt its e-commerce business in the near to medium term. The U.S. does not have a huge manufacturing base, with most consumer goods made in foreign countries, particularly in China and elsewhere in Asia. As such, tariffs are going to make numerous items more expensive for consumers. This in turn could lead to a consumer pullback or even a recession.
However, long term, the company is still well positioned to continue riding the tailwinds of e-commerce. Given the proliferation of smartphones, mobile commerce is still on the rise, while artificial intelligence (AI) is now allowing for more personalized and custom recommendations.
Meanwhile, Amazon is seeing its e-commerce profits grow even more quickly than its sales. This stems from the use of AI to improve operational efficiencies within both its logistics and warehouse networks. AI is helping the company better plan routes, while AI robots in its warehouses are helping with things like inventory optimization and recognizing damaged items, leading to fewer returns.
Profits are also growing more quickly due to Amazon’s high-margin ad business, of which sponsored ads is the largest component. Amazon has grown to become the third-largest digital advertising platform in the world, with it generating $17.3 billion in ad revenue last quarter, an 18% year-over-year increase.
Image source: Getty Images.
Amazon’s most profitable segment, though, is its Amazon Web Services (AWS) cloud computing business. AWS accounted for $39.4 billion, or 57%, of its $68.6 billion in total operating income last year. It was also the company’s fastest-growing segment, with revenue increasing 19% both in 2024 and last quarter.
Amazon invented the infrastructure as a service model when it launched AWS in 2006. Today, it holds around a 30% market share in the space, making it the industry leader ahead of Microsoft’s Azure at 21% and Alphabet’s Google Cloud at 12%.
Like others in the space, AWS is benefiting from helping customers build out their own AI models and applications, while helping them run their AI workloads. It offers customers a wide range of AI foundation models, from both itself and other leading AI companies, through its Bedrock solution. From here, organizations can tailor these pre-trained AI models to their needs. Its SageMaker solution is a more comprehensive platform that customers can use to train and deploy their own custom AI models, or more fully customize a foundation model.
Amazon has developed its own custom AI chips for both training and inference, called Trainium and Inferentia. It also has one for general computing called Graviton. While custom chips lack some of the flexibility of graphics processing units (GPUs), the most common chips used to power AI, they can both boost performance and be more energy-efficient. This ultimately helps the company save costs, giving it a nice advantage in the cloud computing space.
Meanwhile, Amazon is investing heavily in AI to keep up with demand. It plans to spend around $100 billion in AI data center capital expenditures (capex) this year to increase its capacity. The company has a history of spending big to win big, and it is no different with AI.
An attractive valuation
With the recent drop in its stock price, Amazon is now at one of the most attractive valuations the company has seen in its history. It currently trades at a forward price-to-earnings ratio (P/E) of just over 28 based on this year’s analyst estimates and 32.5 times on a trailing basis.
AMZN PE Ratio (Forward) data by YCharts.
Yes, the company could feel the effect from tariffs, but I wouldn’t view this as affecting the company’s long-term prospects. As one of the best-run companies in the world that isn’t afraid to invest in its long-term future, Amazon is a buy for long-term investors.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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