TLDR
- Amazon shares dropped 11% last week amid new tariff announcements from President Trump
- The company launched a bid to acquire TikTok from ByteDance
- Changes to de minimis exemptions could impact Amazon’s third-party sellers
- AWS, which produced 58% of Amazon’s operating profits in 2024, may be less affected by tariffs
- Amazon stock is currently trading at $192.17, well below the analyst consensus target of $264.82
Amazon shares took a significant hit last week, dropping 11% as investors reacted to President Trump’s new tariff announcements. The e-commerce giant wasn’t alone in feeling the pain, with the broader Nasdaq plunging 9.4% and entering bear market territory.
The sell-off came despite Amazon’s headline-grabbing bid to acquire social media platform TikTok from ByteDance. Market concerns about tariffs overshadowed what would normally be major news.
President Trump’s recent tariff announcements have specifically rattled Amazon investors. The changes could directly impact the company’s business model, which relies heavily on imported goods.
Tariff Impact on Amazon’s Business
One of the most concerning elements for Amazon is the closing of de minimis exemptions. These exemptions previously allowed packages under $800 to pass through without duties.
The rule has been altered to a rate of 30% or $25 per item. This effectively ends certain business models that relied on low-cost imports.
While this change might push some customers away from competitors like Shein and Temu toward Amazon, it’s a double-edged sword. Many of Amazon’s third-party sellers also use this practice.
The price of goods on Amazon’s marketplace will likely rise as a result. This could harm sales volumes in the coming quarters.
Amazon’s direct business could also take a hit. The company sources many of its own goods from outside the U.S., making it vulnerable to the new tariff structure.
The cost increases will likely be absorbed by three parties: suppliers, sellers, and consumers. The exact distribution remains unclear, creating uncertainty for investors.
AWS Provides Some Protection
Amazon Web Services (AWS) may offer some insulation from the worst tariff effects. As the company’s cloud computing division, AWS isn’t directly linked to physical goods imports.
AWS produced 58% of Amazon’s operating profits in 2024. This makes it the most important division for the company’s financial health.
The cloud computing unit continues to be both a growth driver and profit maker for Amazon. Many investors consider it the true heart of Amazon’s future prospects.
However, AWS isn’t completely immune from tariff concerns. The computing power for its servers relies on chips, many of which come from Taiwan – a country targeted with a 32% tariff.
The White House announcement included a carve-out for semiconductors. But analysts expect some chip-specific tariffs may come at a later date.
Long-Term Outlook Remains Strong
Despite current challenges, Amazon’s long-term performance highlights its resilience. The company has delivered a total shareholder return of 67.42% over the past five years.
This stands in contrast to the shorter-term fluctuations we’re seeing now. It also suggests potential for recovery once market conditions stabilize.
Amazon’s shares are currently trading at $192.17. This is well below the analyst consensus price target of $264.82, suggesting room for upside if the company navigates the current challenges effectively.
The company’s focus on fulfillment automation and AI advancements in AWS points to potential for enhanced operating margins and profitability. These technological improvements could eventually boost revenue growth projections.
Amazon plans to report its first-quarter results later this month or in early May. Investors will be watching closely for commentary on how the tariffs are affecting business across all segments.
Cloud computing demand remains strong. The general migration to the cloud and increasing AI workloads should benefit AWS in the coming years.
This cloud strength will likely boost Amazon’s stock over the long term. However, it may not prevent short-term pressure as the market continues to react to tariff news.
For now, investors seem to be assuming a worst-case scenario until more concrete information becomes available. The next earnings report should provide much-needed clarity on Amazon’s strategy for addressing these challenges.
