Amazon (AMZN 1.30%) investors have been on a roller coaster in recent years, with the COVID-19 pandemic leading its stock to skyrocket as home-bound consumers flocked to its e-commerce website. Then in 2022, the company's shares plunged 49.6%, struck by steep economic declines.
The fluctuation has many prospective investors doubtful of the company's future, as Amazon's stock remains down 36% year over year.
After a challenging 2022, there are negatives and positives to the tech giant's potential this year. Here are one green flag and one red flag for Amazon in 2023.
Red flag: Amazon could suffer additional e-commerce losses
Inflation hit a high of 9.1% in June 2022, easing to 6.4% this past January. The economically challenging environment put significant strains on Amazon's e-commerce business, with its North American and international segments reporting $10.6 billion in operating losses in fiscal 2022.
While signs that inflation is easing are encouraging, it's unlikely to return to normal levels this year as a recession looms. As a result, Amazon's e-commerce business could suffer further losses in 2023.
However, despite the prospect of further declines, the e-commerce market continues to have an excellent long-term outlook. In 2015, e-commerce sales made up 7.4% of all retail sales worldwide. That figure hit 19.7% in 2022 and is expected to reach 24% by 2026. Meanwhile, Amazon's leading 37.8% market share in the industry should enable it to profit significantly from that growth. For reference, the second-largest market share goes to Walmart with 6.3%.
Amazon's e-commerce business may have more declines ahead, but its dominating position in the market will likely pay off in the long run.
Green flag: Long-term potential and a bargain price
While Amazon's e-commerce business reported significant losses in 2022, its cloud computing platform Amazon Web Services (AWS) more than pulled its weight. The cloud service saw its revenue rise 28.8% year over year to $80.1 billion. AWS also brought in $22.8 billion in operating income on its own, an increase of 23%.
According to Grand View Research, the cloud market was valued at $483.98 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 14.1% through 2030. As a result, Amazon's dominating position in the industry with a 34% market share is immensely promising for the long term.
Moreover, artificial intelligence (AI) has become a hot market in 2023, valued at $136.55 billion in 2022, and projected to grow at a CAGR of 37.3% in the coming years. Meanwhile, the cloud market has become closely connected with AI as more and more platforms are integrating the technology into their services. In fact, cloud competitor Microsoft's Azure recently added the advanced AI software ChatGPT to its library of services as it strives to dominate the burgeoning market.
The good news is that AWS also offers several AI services, such as video analysis, data extraction, speech recognition, chatbot builders, and more. The platform's advantage is its leading market share in cloud computing, which could significantly boost earnings as more and more businesses look to enhance their enterprises with artificial intelligence and turn to Amazon's offerings.
Amazon's e-commerce business may need some time to recover, with further losses likely in 2023. However, its stock dip has made its price a bargain compared to its long-term potential. The stock's 12-month price target of $137.86 is 47.7% higher than its current price. Therefore, the green flag far outweighs the red, making Amazon's stock a screaming buy right now.
