Nasdaq Sell-Off: An Opportunity to Buy Amazon at a Discount

Currently, the market is facing a lot of uncertainty as investors assess how President Donald Trump's tariffs on imports might impact the U.S. economy. The recent sell-off in the tech-heavy Nasdaq Composite suggests that investors are not feeling particularly optimistic.

However, this decline in the market creates an excellent buying opportunity for certain companies. One such example is Amazon (AMZN 1.17%). The company stands out as a leader in both e-commerce and cloud computing, while also making strides in artificial intelligence (AI) and advertising. Despite the recent downturn, Amazon's stock has dropped by 11%.

Here are three compelling reasons why investors should consider purchasing Amazon shares at this time.

1. Amazon's Advantage in AI Cloud Computing

While companies like Nvidia and Broadcom are getting a lot of attention for their role in AI data centers, the importance of cloud computing in the AI sector is also significant.

According to Goldman Sachs, global sales of AI cloud services are expected to reach $2 trillion over the next five years. Amazon is well-positioned to capitalize on this growth, controlling 31% of the U.S. cloud computing market, ahead of Microsoft and Alphabet. In 2024, Amazon Web Services (AWS) generated $39.8 billion in operating income, marking a 62% increase from the previous year.

Though competition in the AI cloud sector is intensifying, Amazon's established dominance provides it with a substantial edge over smaller competitors. As more businesses turn to AI-powered cloud services, Amazon is expected to benefit from its leading market position.

2. Strong Performance in Amazon's Core Businesses

Investors should also pay attention to Amazon's performance in its main areas of operation. The e-commerce and advertising divisions are thriving as well.

In the fourth quarter, Amazon's North American operating income surged by 43% to $9.3 billion. The e-commerce sector accounts for 40% of the U.S. market, significantly outperforming Walmart, which holds only 7%. With e-commerce projected to make up just 20% of all retail sales in the U.S. by 2028, Amazon has ample room for growth.

Additionally, the advertising sector is also flourishing. Ad sales in the fourth quarter increased by 18% to $17.3 billion, and the company aims to capture 15% of the digital advertising market this year. Management estimates that its advertising revenue could potentially reach an annual run rate of $69 billion this year, a substantial rise from $29 billion just four years ago.

3. Amazon Shares Now Available at a Fair Price

Despite a forward price-to-earnings ratio of approximately 29, compared to the S&P 500's 22, Amazon's stock has become much more affordable recently due to the price decrease. Just three months ago, Amazon's forward P/E ratio was as high as 45, well above the overall market average.

The key takeaway is that while Amazon's business fundamentals and growth prospects remain intact, its stock is now available at a lower price, making it a suitable time for investors to acquire this leading tech stock at a discount.

Making Decisions During Market Volatility

In turbulent market conditions, it's easy to be swayed by negative sentiment and consider selling off shares in stocks you once believed in strongly.

If you already own Amazon shares, take a moment to reflect on the reasons you invested in the company in the first place. Consider whether anything fundamental has changed about Amazon that would cause you to change your stance on the stock. If the answer is no, it might be wise to hold your investment or even consider buying more.

Nasdaq, Amazon, Stocks