Although Amazon (AMZN 1.16%) shares crushed the Nasdaq Composite lately, rising 64% so far this year, they're still 26% below their all-time high from more than two years ago. The current price-to-sales ratio of 2.6 is also a substantial discount to the average valuation of the past five years.
There might still be an opportunity here. But is Amazon stock a buy right now? Let's look at arguments for and against owning shares.
A no-brainer stock to own
Investors should immediately be drawn to owning Amazon because it has a wide economic moat that protects it from the constant threat of competition. The company's online marketplace, which accounts for nearly 40% of all e-commerce sales in the U.S., benefits from network effects. Merchants want to set up shop on the platform because of the massive global customer base and traffic (amazon.com had 2.8 billion visitors in the month of July). And consumers, seeking low prices, a huge selection, and fast delivery, don't think twice when considering where to shop first. The site gets better for both merchants and consumers as it gets bigger.
Thanks to its incredible scale and dominance in multiple industries, Amazon is able to amass a huge amount of data that it can utilize to constantly figure out ways to improve its products and services. This advantage is more pronounced when it comes to Amazon Web Services (AWS), the company's cloud segment.
"AWS not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data stored than anybody else," CEO Andy Jassy said on the Q2 2023 earnings call. Thanks to all this data, Amazon is poised to be a leader in the field of artificial intelligence (AI).
A powerful economic moat, coupled with the ability to be at the forefront of a game-changing technology like AI, makes Amazon a no-brainer stock to buy right now.
Rebuttals to bearish arguments
To give investors a more thorough understanding of Amazon's situation, I think it's worthwhile to also take a close look at why it's a good idea not to buy the stock. After knowing the bear case, investors can have even stronger conviction about owning shares.
The most obvious reason to pass on the stock is due to Amazon's massive size. Trailing 12-month sales totaled a whopping $538 billion. And the business is already so dominant in multiple industries: It's the leader in e-commerce and cloud computing, while also quickly becoming a major player in the digital ad market. Naturally, the main question centers on just how much more growth Amazon can post in the decade ahead.
If the pandemic was any indication, Amazon still has lots of expansion potential. Even before the health crisis, growth was superb. And the end markets it operates in are benefiting from powerful secular trends that should propel the business thanks to soaring demand from customers. So is it a stretch to believe that Amazon can increase revenue by double digits going forward? I don't think so.
Another key risk to pay attention to -- one that will probably only become more pressing in the years ahead -- is the regulatory environment. It shouldn't come as a surprise that government agencies, primarily in the U.S. and Europe, have taken aim at big tech enterprises for becoming too powerful and stifling competition. That's a fair assessment, as the world really hasn't seen businesses before that have gotten this big, this fast, impacting the daily lives of billions of people across the globe.
Making matters more complicated is that technology is constantly changing, so regulators have to always be learning in order to stay knowledgeable about what's going on. Regulatory frameworks and actions that were used in the past might not work these days.
For Amazon, the biggest threat is that the business is forced to be broken up. But this could be a win for existing shareholders, as they'd now be able to have a direct ownership stake in various segments. Consequently, this could unlock greater shareholder value.
Investors who take the time to consider the bear arguments and their rebuttals will likely have even more confidence in buying shares of this fantastic company.
