/Amazon%20-%20Image%20by%20Tada%20Images%20via%20Shutterstock.jpg)
After carrying the market rally on their shoulders for two years, “Magnificent 7” stocks have looked weak this year. Meta Platforms (META) is the only constituent of the coveted group that is in the green, which summarizes how badly out of favor these names have been. Amazon (AMZN) stock is down 9.8% this year and has shed almost 18% from its record highs that it hit in February. In this article, we’ll examine whether it would be smarter to buy the dip in AMZN stock or steer clear. Let’s begin by analyzing why the stock has fallen this year.
Why Has Amazon Stock Dropped?
There has been a broad-based weakness in markets amid concerns over President Donald Trump’s tariffs and their impact on consumer demand. Companies find themselves between a rock and a hard place as a result of the tariffs. They can either pass on tariffs to consumers, which would mean dampening an already tepid spending environment, or else they need to absorb the tariffs, which would mean a compression of their profit margins.
Recession odds are rising, especially as retailers like Walmart (WMT), Target (TGT), and Dollar General (DG) have given a rather bleak picture of consumer spending, which accounts for over two-thirds of the U.S. economy. Amazon’s e-commerce business in the U.S. – the company’s biggest revenue driver – will feel the pinch from any slowdown in consumer spending.
Along with concerns over slowing consumer demand, markets are now also wary of tech companies’ burgeoning investments toward building artificial intelligence (AI) capabilities. Amazon for instance expects its 2025 capex to be in the ballpark of $100 billion - significantly higher than its $83 billion capex in 2024. The days of markets cheering AI capex are now in the rear-view mirror and investors are now increasingly looking for signs of commensurate return on investments (ROIs). Amazon’s Q4 financial performance also failed to impress as the company’s guidance came in short of Street estimates. The stock peaked prior to the report and hasn’t been able to revisit those highs.
Should You Buy the Dip in Amazon Stock?
After the recent correction, Amazon’s valuation multiples have contracted and it now trades at a forward price-earnings (P/E) multiple of 31.8x. Now, there are two ways of looking at these multiples. On the face of it, Amazon’s P/E is the second highest among Magnificent 7 peers, and only Tesla (TSLA) trades at a higher multiple.
However, Amazon’s multiples should be seen in light of its growth potential – both in the short as well as the long term. The company is present in multiple high-growth and structural stories like e-commerce, cloud, AI, streaming, and digital advertising. Moreover, while some Big Tech peers are struggling to monetize their AI capex, Amazon has already started to see results.
The company is using AI across its business segments and the technology is helping it lower costs, increase engagement, improve logistics, and earn additional revenue. It recently unveiled its shopping assistant named Interests which it says “transforms how you discover and shop for products related to your passions by constantly checking new inventory that’s been added to Amazon’s vast online store to help you quickly and easily find new items you might want.” AI features might fuel the next leg of growth for e-commerce, and by extension Amazon, which is synonymous with online shopping for a lot of people.
Amazon’s Margins Should Expand Further
The operating margins at Amazon’s North American and International segments have increased for eight consecutive quarters. It has also lowered its cost to serve customers on a per-unit basis for two years and sees room to cut costs further. As the company continues to focus on efficiencies including through streamlining its workforce, its margins should remain buoyed even as there could be fluctuations.
Overall, I see the recent dip in Amazon as an opportunity to gradually buy more shares. While the stock might still fall if broader markets nosedive, it is one name that I can hold without fuss over the next decade.
AMZN Stock Forecast
Analysts are also in love with Amazon, and multiple brokerages have named it as a top idea for 2025. Of the 51 analysts covering AMZN, 46 have a “Strong Buy” rating while four rate it as a “Moderate Buy,” which makes it the highest-rated Magnificent 7 stock. One analyst rates Amazon as a “Hold,” and its mean target price of $268.18 is 37% higher than its current price.
