Amazon.com, Inc. (NASDAQ:AMZN) is navigating turbulent waters in the stock market following President Donald Trump's announcement of new tariffs on April 2, 2025. Investors have reacted negatively, leading to a significant decline in major indices. The S&P 500 fell over 10% in the two days after the tariff announcement, while the Dow Jones entered correction territory, and the Nasdaq Composite officially entered a bear market. Amidst this backdrop, Amazon's stock has also faced considerable pressure, dropping over 13% in the first three months of 2025 alone.
The newly imposed tariffs, which include a hefty 34% tax on goods imported from China, are expected to raise prices for both Amazon sellers and consumers. As of the end of 2024, over 50% of Amazon's top sellers were based in China, meaning that many of them could either absorb the increased costs or pass them on to consumers. Given that many sellers operate on thin margins, the latter seems more likely. While Amazon could potentially assist its sellers by reducing seller fees, the high tariffs pose a significant challenge for the company.
Despite the adverse effects of the tariffs, Amazon's cloud computing division, Amazon Web Services (AWS), is expected to remain largely unaffected by the new trade policies. In 2024, Amazon's operating income reached $68.6 billion, with AWS contributing 58% of that total, or $39.8 billion. Since most of the tariffs only impact physical goods, AWS should continue to thrive, although there may be some increased costs related to hardware. Amazon has been proactive in reducing its reliance on external suppliers for hardware, having introduced two new AI chips in November 2023, which could help mitigate some of these costs.
On April 7, 2025, Wedbush Securities reiterated its Outperform rating on Amazon, maintaining a price target of $280. This reflects the firm's confidence in Amazon's ongoing growth in the digital advertising sector, which has been bolstered by its vast merchandise offerings and rich customer data. Amazon's revenues reached $638 billion, marking an 11% year-over-year increase. The enhancements made to Amazon's Demand Side Platform (DSP) have made it a more formidable competitor in the advertising technology space, particularly against companies like The Trade Desk (NASDAQ:TTD).
Moreover, Amazon's Prime Video service has successfully transitioned to an ad-supported free tier, capturing advertising dollars that were previously directed towards other channels. This move has helped the company leverage its extensive audience reach and detailed first-party data, contributing to its success in attracting advertisers.
Analysts have generally maintained a positive outlook on Amazon, despite the challenges posed by the tariffs. TD Cowen recently adjusted its price target for Amazon to $240, while Goldman Sachs reiterated a Buy rating with a $255 target, emphasizing the potential financial impact of tariffs on Amazon’s eCommerce operations. JMP Securities also maintained a Market Outperform rating, with a price target of $285, highlighting strategic initiatives aimed at expanding Amazon's market reach.
InvestingPro's analysis indicates that Amazon's stock is currently trading below its fair value, suggesting an opportunity for investors. The stock's fundamentals remain strong, with a gross profit margin of 49% and robust cash flows. As of April 7, 2025, Amazon's stock was trading at $171, down 21.3% year-to-date and having experienced a 9.14% drop over the past five days.
Despite these fluctuations, Wedbush analyst Scott Devitt pointed out that Amazon's stock is mispriced compared to its competitors, calling the current valuation “nonsensical.” He noted that Amazon's retail business is expanding at a faster rate than industry giants like Walmart (WMT) and Costco (COST). Furthermore, Amazon's investments in artificial intelligence (AI) are expected to bolster its position in the market, as analysts believe that companies with strong ties to AI will continue to thrive despite the ongoing trade war.
As the market reacts to the implications of the tariffs, Amazon is showing signs of resilience. On April 7, the stock gained 1.05% amidst a broader market recovery. The analysts' consensus estimate for Amazon remains a Strong Buy, based on 45 Buy ratings and one Hold rating over the last three months. The average price target across analysts is $268.05, representing a potential upside of 55.32% for AMZN shares.
In summary, while Amazon faces significant challenges due to the new tariffs imposed by the Trump administration, its strong fundamentals, ongoing growth in the digital advertising space, and strategic initiatives in AI and cloud computing position it well for the future. Investors may find opportunities in the current market conditions, particularly as the company continues to diversify its revenue streams and solidify its competitive edge.
