Amazon (AMZN 0.29%) stockholders have been on a roller coaster in recent years. Its shares hit record heights in 2021 as COVID-19 lockdowns made it the go-to for consumers shopping for essentials. Then, an economic downturn in 2022 curbed online spending and sent Amazon's stock crashing back down. As a result, this year has been one of recovery.
The company's stock is up 53% year to date after consistent profit growth in its e-commerce segments and an expanding venture into artificial intelligence (AI). Amazon is on a promising growth path, making its stock an attractive long-term investment. Despite the rally, its shares remain down 31% since the high it hit in July 2021, suggesting there could be plenty of room left for growth.
It's an excellent time to learn more about this tech giant and potentially invest in its future. So, here are three things about Amazon that smart investors know.
1. Amazon is facing an antitrust lawsuit from the FTC
News broke last month that the Federal Trade Commission and 17 states have filed a lawsuit against Amazon over alleged anti-competitive practices. The suit claims Amazon "blocks competition, allowing it to wield monopoly power to inflate prices, degrade quality, and stifle innovation for consumers and businesses." The company's stock has fallen 1% since the FTC's announcement as shareholders question what this could mean for Amazon's stock and business.
Amazon has responded to the FTC on each of its concerns, stating the very practices accused of being anti-competitive are what help third-party sellers succeed and keep prices low for consumers. The tech giant called the suit "misguided" and said it shows the Commission's "fundamental misunderstanding of retail." Amazon believes if the FTC is successful, consumers and businesses will be harmed, resulting in higher prices, decreased selection, and slower shipping.
Regardless of the outcome, investors should be aware that the FTC's lawsuit will likely be a lengthy battle that it is unlikely to win. It will need to prove Amazon is a monopoly, a challenging claim with rivals like Walmart in e-commerce and Microsoft in the cloud market. Meanwhile, recent failings by the FTC to block Microsoft's acquisition of Activision Blizzard and Meta's purchase of start-up Winin further indicate that Amazon's business is unlikely to be strongly affected in the end.
2. Investing $4 billion in a rival to ChatGPT developer OpenAI
Amazon has gone all in on AI this year after appearing to fall behind Microsoft in the lucrative industry. The retail giant has introduced several new AI-enabled tools on its cloud platform, Amazon Web Services. In June, CEO Andy Jassy announced the company had developed two AI chips as it seeks to take on market leader Nvidia by offering the best price-to-performance.
The latest development reveals Amazon will invest up to $4 billion in Anthropic, a competitor to ChatGPT developer OpenAI. The partnership will allow Amazon to better compete with Microsoft, which has a 49% stake in OpenAI.
The AI market is valued at $137 billion and is projected to expand at a compound annual growth rate of 37% through 2030. As the world's biggest cloud company, Amazon could have an edge in AI with its expanding library of AI services, and continued investment in the technology will allow it to better compete with companies like Microsoft and Alphabet over the long term.
3. Keep a long-term perspective on Amazon's stock
Amazon has enjoyed a solid recovery in its e-commerce business this year, with its North American segment hitting over $3 billion in operating income in the second quarter of 2023 after reporting $627 million in losses the year before. Meanwhile, heavy investment in a burgeoning market like AI could spell a lucrative future for the company.
However, the fact remains that its stock is at an expensive price point, suggesting that prospective investors should be prepared to hold for the very long term to see significant gains.
Data by YCharts.
The chart above shows Amazon has the highest price-to-earnings ratio (P/E) among some of its biggest competitors. These companies offer alternative ways to invest in AI, cloud computing, and e-commerce at far lower prices than Amazon's stock. Its P/E of 77 indicates its shares don't offer anywhere close to the value of these other tech giants, making it an expensive option.
As a result, investors should be prepared to hold Amazon shares for five to 10 years minimum. However, it might also be a good idea to consider other investment options as you wait for its stock to come down to a more attractive price.
