Amazon (AMZN 2.06%) continues to report strong growth, but its stock fell last week after weak guidance and worries about tariffs. It’s a huge company with many moving parts, but the market is focusing on the negative.
That’s because the market is forward-looking, and these are concerns about the future. But maybe it’s not forward-looking enough. If you look into the second quarter, perhaps Amazon’s update was disappointing. But the company has a habit of beating guidance, like it did in the first quarter. Furthermore, if you look down the road a few years, this dip starts to look like an excellent buying opportunity.
The good and the bad, and the unclear
Amazon reported a solid 2025 first quarter. Sales increased 10% year over year (currency neutral) to $155.57 billion, beating even the high end of guidance of $155.5 billion, and operating income was $18.4 billion, up from $15.3 billion last year and beating the high end of guidance of $18 billion. Earnings per share (EPS) rose from $0.98 last year to $1.59 this year, easily beating Wall Street’s expectations of $1.37.
Image source: Amazon.
But the market got hung up on second-quarter guidance. Management is guiding for sales to increase 9% year over year but for a potential decrease in operating income. Amazon is calling for operating income of $10 billion to $17.5 billion when it came in at $14.7 billion last year.
There were several factors figuring into that outlook. CEO Andy Jassy mentioned the tariff situation, saying: “It’s hard to tell what’s going to happen with tariffs right now. It’s hard to tell where they’re going to settle and when they’re going to settle.”
Management added that it also has costs associated with its Kuiper broadband launch. However, Jassy noted, “A lot of what we’re thinking about short and medium term actually turns out to be what we think about long-term too,” in terms of selection and low prices.
How Amazon is looking at tariffs
Jassy didn’t whitewash the potential effects of tariffs on the first-quarter earnings call, and he said that so far, demand has not attenuated, and there has been a streak of higher buying in some categories that may indicate tariff expectations. However, he made several points about how investors can view the impact in light of Amazon’s advantages:
- Amazon mostly sells essentials, which customers are still going to buy no matter what. In the first quarter, everyday essentials increased at a rate more than twice that of the whole business, accounting for 1 in 3 products sold on the platform.
- Amazon is one of the largest grocers in the world, selling $100 billion in groceries last year, excluding Whole Foods and Amazon Fresh.
- Amazon has a massive product assortment, possibly larger than its peers, with more than 2 million sellers. When there’s general volatility, Amazon is well positioned to help customers find what they need at the best price.
- When consumers feel uncertainty, they tend to buy from stores they trust. As Amazon builds its network, gets orders to customers faster, and offers more products, customers count on it more for their essentials.
There’s a lot more going on
There’s so much more happening at Amazon than e-commerce. Jassy made his usual comments about the potential for AI: “More than 85% of the global IT spend is still on premises, so not in the cloud yet. It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years.”
Amazon Web Services (AWS) revenue increased 17% year over year in the first quarter, and it’s seeing growth both from generative artificial intelligence (AI) business as well as non-generative AI business. It inked new deals with companies like Adobe, Uber Technologies, and NextEra Energy, and AWS operating income increased 22% year over year, accounting for 63% of the total.
In other words, if you can focus on the long-term opportunity, you’ll see that buying Amazon on the dip is an opportunity you don’t want to pass up.
Why now?
Amazon stock fell after earnings, but its P/E ratio has remained steady around 30, because earnings increased. That means the market thinks Amazon is fairly valued at this price, and the negativity is built into the stock price. It’s an indication that the market sees the good stuff here and isn’t willing to knock its valuation down lower.
There are no guarantees in the market, but with management’s encouraging stance on tariffs and plenty of long-term opportunities, the stock might start to climb back up soon. If you have a long time horizon and have been on the fence about Amazon stock, now might be the time to buy.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Amazon, NextEra Energy, and Uber Technologies. The Motley Fool has a disclosure policy.