Should You Buy Amazon Stock in 2025? – The Motley Fool

Another year, another year of even bigger gains Amazon (AMZN 1.77%). The e-commerce and cloud services giant's stock price soared 81% in 2023. The stock is on track to end 2024 up nearly 50%.

But should you buy Amazon stock in 2025? Here's a discussion of the pros and cons of this skyrocketing stock.

Arguments against buying Amazon stock

Let's start with the negative lawsuit against Amazon. One side effect of several years of strong gains is that stock valuations can be a concern for many investors. Amazon's stock trades at nearly 36 times forward earnings. This multiple makes Amazon the second most expensive “Magnificent Seven” stock (runner-up is #2) tesla. )

Another reason to be cautious about buying Amazon stock in the new year is economic uncertainty. We've already seen the Fed be cautious about the number of rate cuts it will make through 2025. If the Fed becomes more nervous about the U.S. economy, that could spell bad news for Amazon.

Many investors also appear to be completely discounting the potential impact of the high tariffs that President-elect Trump has promised to impose. These tariffs could increase the prices of many products. A resurgence of inflation could reduce consumer spending and hurt Amazon's business.

There are some signs that the artificial intelligence (AI) boom that propelled Amazon Web Services (AWS) may be slowing. alphabet And Google CEO Sundar Pichai even said earlier this month, “I think progress will be even more difficult.” He added:[T]This could lead to slower growth for AWS and its cloud service competitors.

Reasons to buy Amazon stock

Criticism of Amazon's reputation is not as strong as it seems at first glance. First, the company's earnings multiple has historically been higher, and its stock price continues to rise.

But more importantly, Amazon's revenue and free cash flow are growing more strongly than ever. For example, in the third quarter of 2024, the company reported a profit of $15.3 billion, up nearly 55% year over year. Free cash flow nearly tripled from the previous year to $44.9 billion.

Economic turmoil will probably hurt Amazon in 2025. However, things may continue to be good for the company in the short term. Amazon will almost certainly continue to thrive in the long term.

CEO Andy Jassy regularly shares his expectations for the cloud services market. Jassy believes that the current configuration of around 85% of global IT spending on-premises and the rest in the cloud will be reversed over the next decade or so. AWS is poised to benefit from this change.

Jassy predicts similar trends will be seen in e-commerce. He estimated on Amazon's third-quarter earnings call that 80% to 85% of retail business is still in brick-and-mortar stores, with the remainder being e-commerce. Jassy said he thinks “this equation is going to flip over the next 10 to 20 years.” If his claims are correct, e-commerce leader Amazon should be the biggest winner.

Not everyone agrees that progress in AI is slowing. OpenAI CEO Sam Altman recently posted that X has “no walls.” AI agents could be the next big thing in AI. If so, Amazon is definitely in the thick of the competition.

my verdict

I think there are two questions with different answers.

1. Will Amazon stock rise in 2025?
2. Should you buy Amazon stock in 2025?

The answer to the first question is probably not satisfactory, but no one knows for sure. I think it's likely that Amazon stock will rise in the new year, but there are too many variables that could cause problems.

Regarding the second question, I think the answer is yes, at least for many investors. If you're looking for income, Amazon isn't for you because it doesn't pay dividends. But if you're looking for growth and taking a long-term view, this should continue to be one of the better stocks on the market, in my opinion.