Amazon (AMZN 1.38%) investors have had a tricky few years, with the company's stock reaching record highs during the COVID-19 pandemic and then crashing back down in 2022 amid macroeconomic headwinds. This year has been one of recovery so far, with its stock up roughly 50% since Jan. 1. However, it remains down 47% from the all-time-high price of $186 it hit in July 2021. The difference could mean Amazon still has plenty of room for growth ahead.
As a result, it might be worth considering investing in the e-commerce giant before it's too late. But before you do, it's wise to get the whole picture by understanding the positive and negative aspects of investing in the company.
So here are the bear and bull arguments for Amazon stock.
Bear: Slowing growth for Amazon Web Services
Amazon's cloud platform Amazon Web Services (AWS) has seen considerable growth over the years, achieving the largest cloud market share at 32%. It has done so by becoming a go-to for thousands of businesses seeking digital services.
The cloud service has diversified Amazon's earnings and strengthened its business, proving itself to be a major asset last year when Amazon's e-commerce segments reported a combined $10.6 billion in operating losses. AWS has more than pulled its weight with its $22.8 billion in operating income keeping the company profitable in fiscal 2022.
However, AWS' slowing growth has increasingly concerned investors. Year-over-year revenue growth for AWS hit 40% in the fourth quarter of 2021 but decreased to about 16% in the first quarter of 2023. An economic downturn has caused spikes in inflation and interest rates, leading many businesses to cut cloud spending. As Amazon holds the largest share in the industry, it has been hit hardest by the decline.
The good news is inflation has eased for 10 consecutive months. The Consumer Price Index rose 4% in May, the lowest point in two years after hitting 9.1% in June 2022. AWS will likely see a boost over the next year from the improving situation as businesses are able to spend more freely. Meanwhile, advances in artificial intelligence (AI) are expected to further bolster the cloud market.
Bull: A recovering e-commerce business
Last year's e-commerce losses were particularly concerning as Amazon's North American and international segments make up over 80% of the company's revenue. However, easing inflation has already positively affected the company's retail business.
In Q1 2023, Amazon's North American segment returned to profitability, earning $898 million in operating income. Meanwhile, its international segment also reported a marginal improvement. With Amazon's e-commerce business back on a growth path, its dominance in the sector has strengthened the argument for its stock.
Amazon holds a leading 38% U.S. market share in e-commerce. For reference, Walmart has the second-largest share at 6%. As a result, the company has massive potential as inflation rates improve and the market bounces back.
NASDAQ: AMZN
Key Data Points
Moreover, the e-commerce market is nowhere near hitting its ceiling over the long term. According to Statista, the e-commerce industry is expected to hit $4 trillion this year and expand nearly 53% by 2027. With its Prime subscriptions consistently trending up and growth potential in multiple countries, Amazon has excellent prospects over the next decade.
Amazon shares have risen 48% over the last five years. While that growth may not be as impressive as tech competitors like Apple and Microsoft, which have seen their stocks climb over 230% in the same period, Amazon remains a solid long-term option. Its leading market shares in cloud computing and e-commerce could take it far in the coming years as both sectors develop. Meanwhile, there's no telling how much Amazon will gain from the current boom in AI and the power of AWS in its clutch.
