Time To Buy AMZN Stock?
A view of the Amazon warehouse in Pawlikowice, Poland on May 29, 2025. (Photo by Jakub ... More Porzycki/NurPhoto via Getty Images)
Amazon (NASDAQ:AMZN) is really leaning into AI, recently announcing a massive $10 billion investment in new data centers in North Carolina. Like Google and Microsoft, Amazon has been a major player in the AI boom, spending a whopping $222 billion on capital expenditures since 2022.
The stock has seen a nice jump lately, climbing 24% from around $167 on April 21 to $208 now. This rally seems to be fueled by the broader market's positive reaction to new trade deals and a pause on reciprocal tariffs between the U.S. and China. The probability of the U.S. economy going into a recession this year has also come down from 60% earlier to 40% now, according to J.P. Morgan Research.
Given the change in overall market sentiment, you might be wondering if Amazon is still a smart investment after its recent climb. We believe it is. Even with the recent rally, Amazon shows strong operational growth and solid financial health, and its stock isn't overpriced.
Our analysis dives deep into Amazon's investment potential by looking at its current valuation compared to its recent operating performance and overall financial health. We've assessed Amazon across key areas like Growth, Profitability, Financial Stability, and Downturn Resilience. Our findings show that Amazon has a strong operating performance and financial condition. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative - having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – RGTI Stock: What's Next After An 1,100% Rally?
When we look at AMZN stock against the broader market, it seems pretty reasonable. Amazon's price-to-sales ratio is 3.4 times, which is pretty close to the S&P 500's 3.0 times. Its price-to-earnings (P/E) ratio of 33.3 times is higher than the market's 26.4 times, but its price-to-free cash flow ratio is 19.3 times, which is slightly better than the S&P 500's 20.5 times. This means Amazon is doing a good job generating cash compared to its price. Check out our dashboard on Amazon's Valuation Ratios for more details.
This moderate valuation suggests that Amazon isn't really getting a premium for its growth potential right now. It's likely that those high capital expenditures we mentioned earlier have made some investors a bit nervous.
While that higher P/E ratio signals that the market expects Amazon's earnings to keep growing, it also means the stock could be vulnerable if that growth slows down. However, it's worth noting that this 33x P/E is actually lower than Amazon's average P/E of 46x over the past two years.
Amazon's revenue just keeps climbing, showing how good they are at expanding across all their different businesses. Over the last three years, their annual revenue has grown by an average of 11%, much better than the S&P 500's 5.5%. This strong performance continued in the past year, with revenues jumping 10.1% from $591 billion to $650 billion.
Looking at their most recent quarterly results, things are still looking good. Revenues grew 8.6% to $156 billion compared to $143 billion in the same period last year. This consistent growth, whether we're looking at annual or quarterly numbers, really highlights how Amazon's diverse business model keeps them expanding, even as they get bigger and bigger.
While Amazon's revenues are trending higher, its profitability tells a slightly different story, and it might explain why some investors are a bit hesitant. For instance, their operating margin is 11.0%, which is a bit lower than the S&P 500's average of 13.2%. This suggests they're facing some challenges in turning all that revenue into efficient operations. Similarly, Amazon's net income margin of 10.1% also lags behind the broader market's 11.6% average.
However, Amazon's operating cash flow margin is 17.5%, actually beating the S&P 500's 14.9%. This means they're doing a great job at generating cash, even if their accounting profits seem lower. This difference often comes down to Amazon's huge investments in growth and infrastructure. These investments might hit the company's short-term profit margins, but they're setting it up for bigger growth down the road.
Amazon's balance sheet is incredibly strong, giving them a really solid base to handle any economic bumps in the road. The company's debt-to-equity ratio is super low at just 6.1%, which is way better than the S&P 500's average of 19.9%. This conservative approach means Amazon has tons of financial wiggle room for big investments.
They're also sitting on a good amount of cash. Cash and cash equivalents make up 14.7% of their total assets, slightly more than the broader market's 13.8%. With $95 billion in cash and $643 billion in total assets, Amazon has serious resources to chase new growth opportunities and ride out any tough times.
Looking back at how Amazon's stock performed during past market downturns gives us some good insights. It shows they can be pretty resilient, but also quite volatile.
During the COVID-19 pandemic in 2020, Amazon actually held up pretty well. Their stock only dropped 22.7% compared to the S&P 500's 33.9% plunge, and it bounced back to pre-crisis levels in just two months.
However, things were a bit different during the 2022 inflation shock. Amazon's stock took a bigger hit, falling 56.1% while the market dropped 25.4%. It took almost two years for the stock to fully recover, which just goes to show how growth stocks can feel more pain when interest rates go up and valuations get squeezed.
The 2008 financial crisis presented similar challenges, with Amazon declining 65.3% against the market's 56.8% drop, though it also recovered within two years. These patterns suggest that while Amazon tends to swing more during severe market stress, it typically has the underlying strength to bounce back over time.
We believe Amazon is an attractive investment right now. It offers a good valuation combined with incredibly strong fundamentals and a solid financial position.
The company is delivering double-digit revenue growth and boasts a fortress-like balance sheet. These strengths outweigh any minor concerns about profitability. Notably, Amazon's AWS segment is far more profitable, boasting estimated EBITDA margins of around 45% last year, than its other businesses, which have EBITDA margins under 15%. With AWS's contribution to the company's overall sales on the rise—up from 12% in 2021 to 17% last year—the overall profitability will also improve.
Furthermore, with a proven ability to recover from downturns, Amazon provides an excellent entry point into the long-term growth trends of the ongoing AI boom. It's a strong addition for growth-oriented portfolios.
Not too happy about the volatile nature of AMZN stock? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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