You might be surprised to learn that Amazon (AMZN 0.60%) stock is trailing the S&P 500 this year. Despite the market rebounding on good news about tariffs, the market is still worried about Amazon's high exposure.
In the company's last earnings update, management gave a fair defense of its business and why it wasn't as exposed as some investors might think. Amazon stock climbed after that report, but it's still not back to its previous highs.
Amazon reports second-quarter earnings on July 31. Let's see what could happen and whether or not it makes sense to buy the stock before the report.
Image source: Amazon.
High expectations
Amazon is the second-largest company in the U.S. by sales, and it's the fourth-largest company in the world by market cap. It has about 40% of the U.S. market for e-commerce and 30% of the global market for cloud services. It's a formidable company, and there are many built-in expectations to keep it that way.
It's a large and complex business with many moving parts, and it makes steady progress in its various segments with updates every quarter. In e-commerce, it recently started restructuring its inbound channels to get products to its vast domestic distribution centers faster and cheaper, and to make sure they're well stocked with the products shoppers purchase most frequently. It's also using more robotics, which can be quicker and less expensive than relying on workers, and it's expanding its delivery station count in rural communities.
CEO Andy Jassy calmed shareholders' concerns about tariffs on Chinese goods, saying the company has millions of products with many suppliers, which protects it to some degree, and that as a trusted name, shoppers will keep purchasing from it when there's uncertainty.
What everyone is most interested in, though, is artificial intelligence (AI). Amazon has a competitive AI business through Amazon Web Services (AWS), its cloud segment. The AI business is a multibillion-dollar business, but management sees it as being in its early innings. It's investing more than $100 million in AI this year alone to provide the largest and most capable AI platform. "We're not dabbling here," Jassy said. "We're very intentionally giving builders the broadest possible capabilities at every level of the AI stack cost-effectively to use AI expansively across their businesses."
Management gave a broad range of outcomes for the second quarter, considering the dynamic environment. Sales are expected to increase 7% to 11%, or come in between $159 billion and $164 billion. Wall Street is expecting $162 billion. It's also guiding for operating income of $13 billion and $17.5 billion, up or down from $14.7 billion last year.
What could happen on July 31
Amazon stock has mostly jumped after earnings in recent times. It tends to beat guidance, and it usually has some exciting news for shareholders and followers. However, there's no guarantee, and it plunged after the 2024 fourth quarter report, when tariffs were first being discussed.
Since the tariff situation seems to be temporarily resolved, and the market isn't giving it that much weight right now, the likelihood is that Amazon stock will jump this time around. However, there's no way to know with certainty beforehand.
Although it might appear to be a good idea to buy before earnings if they're expected to be positive, if you're a long-term investor, these kinds of timing decisions tend not to matter in the long run. Amazon stock could jump on Thursday and you'll feel really good about your decision to buy beforehand, but if there's a sudden announcement next week about new tariffs, the stock could drop to an even lower price than it was before the report.
You can't time the market, and it's not usually worthwhile to try. If you see Amazon's long-term opportunity and have confidence in its management, and you appreciate today's compelling valuation, you should buy it as soon as possible.
