Amazon (AMZN -0.29%) has been working for years to build out its e-commerce operation, spending extravagantly and plowing money into its logistics network and delivery operations. Even when those ventures weren't profitable, Amazon could always fall back on its industry-leading cloud computing business, Amazon Web Services (AWS).

AWS was growing quickly and generating juicy margins in the process, with profits that subsidized the rest of the business. When Amazon reported its results on Thursday after the bell, however, AWS grew at its slowest pace ever, leaving investors to wonder what's next for the tech giant. 

The big story of 2022 has been the macroeconomic uncertainty and the "is-it-or-isn't-it" a recession. Those challenges were in full view in Amazon's financial performance. Revenue of $127 billion grew 15% year over year. If not for foreign-currency headwinds, net sales would have increased by 19%.

These factors also weighed on profits, as earnings per share (EPS) of $0.28 declined 10%. For context, analysts' consensus estimates forecast revenue of $127.4 billion and earnings per share of $0.22, so Amazon cleared both bars.

A couple entering credit card information into a smartphone.

Image source: Getty Images.

Partly cloudy

The devil is in the details, as the saying goes, but the specifics didn't offer investors any solace. Amazon's North American e-commerce business grew revenue by 20%, though international sales fell 5%. When you combine these two numbers, the company's digital retail grew by roughly 13% but also generated an operating loss.

Investors have always comforted themselves in the knowledge that AWS would always be there to save the day, but there were cracks in the veneer there, as well. Cloud revenue grew by 27% year over year, but operating margins slumped, falling to 26%, compared to 30% in the prior-year quarter.

This not only marked the slowest growth of AWS on record, but it was also slower than its two major competitors. For the quarter ended Sept. 30, Alphabet's Google Cloud grew 38% year over year, while Microsoft's Azure grew 35% -- though both reported decelerating growth. While this may not be an apples-to-apples comparison, it's directionally accurate and shows the fierce competition among the major cloud providers, which puts Amazon -- as the industry leader -- in the crosshairs.

Unhappy holiday?

Perhaps the most troubling aspect of Amazon's financial report was its outlook. For the upcoming -- and extremely important -- holiday quarter, Amazon expects net sales in a range of $140 billion and $148 billion, which would represent growth of between 2% and 8%. The company is also guiding for operating income of between $0 and $4 billion.

The forecast sent shivers through Wall Street, as analysts' consensus estimates called for revenue of $155.09 billion and operating income of $5.05 billion.

A person carrying holiday shopping bags will looking at a credit card and a smartphone.

Image source: Getty Images.

Now what?

In times like these, when things seem the worst, it's best to take a step back and look at the bigger picture, because the long-term reality can be obscured by the short-term chaos.

On the cost front, Amazon has been working feverishly to cut expenses after two COVID-led years of unbridled expansion. CEO Andy Jassy addressed this in the earnings release, highlighting cost-cutting as a matter of priority. He said, "We're also encouraged by the steady progress we're making on lowering costs in our stores fulfillment network, and have a set of initiatives that we're methodically working through that we believe will yield a stronger cost structure for the business moving forward." 

It's important to remember that the economy is in the middle of a downturn, with consumers and businesses alike reining in spending. Whether it turns out to be a recession or not, it behooves investors to reset their expectations, to some degree, knowing full well that things will be far different once the economy rebounds.

E-commerce and cloud computing may seem stalled now, but growth will resume. As the industry leader, Amazon is well-positioned to succeed when it does. The global e-commerce market is expected to grow from $3.3 trillion now to $5.4 trillion in 2026 and account for 27% of all retail sales, according to calculations by Morgan Stanley.

Similarly, cloud computing is also expected to generate impressive growth, climbing from $380 billion in 2021 to $1.6 trillion by 2030. Both represent fertile fields for Amazon to plow.

Looking ahead, Amazon has advantages that rivals can't match. While estimates vary, Amazon controls nearly 38% of U.S. e-commerce, easily eclipsing its top 14 competitors combined, according to Statista. For context, second-place Walmart accounts for 6.3%.

Furthermore, Amazon's dominance of online retail has made it the largest retailer in the U.S., pushing it past Walmart in terms of total retail sales. It grew its share to 9.4%, compared to Walmart's 8.6% share, in 2021. 

Finally, there's the matter of valuation. Amazon was selling for just 2.3 times trailing 12-month sales before its earnings report -- which is a steal. Based on the market's reception of Amazon's report, it will likely be trading lower by the time you read this. That's the cheapest the stock has been in more than seven years.

Reports of Amazon's demise are being greatly exaggerated. For investors with patience and the stomach for volatility, Amazon stock is a buy.