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Amazon's Stock Drop: Strong EPS but Weak Guidance Concerns

Amazon reports solid earnings, including an EPS increase to $1.59. However, stock prices fell due to weak Q2 guidance and tariff uncertainties. This may present a buying opportunity for long-term investors looking past immediate concerns.

Date: 
AI Rating:   7

Investment Overview

Amazon has shown robust growth in its first quarter of 2025, with a significant earnings per share (EPS) increase from $0.98 to $1.59, easily surpassing Wall Street's expectation of $1.37. The company's revenue also increased, with sales hitting $155.57 billion, exceeding the high end of guidance. This performance indicates strong underlying business fundamentals.

However, investor sentiment shifted negatively after Amazon provided its second-quarter guidance, which forecasted a 9% revenue growth but a potential decrease in operating income. The projected operating income range of $10 billion to $17.5 billion represents a decline from the previous year's $14.7 billion. This caused concern among investors, leading to a decrease in stock price despite the solid performance in the first quarter.

The mention of tariffs adds another layer of uncertainty. While management has acknowledged potential tariff impacts, they have also noted that demand has not significantly decreased, with sales of everyday essentials continuing robustly. Amazon's expansive product assortment and reputation for reliability further position it favorably even amidst market volatility.

Long-Term Perspective

Despite immediate concerns, Amazon’s long-term outlook remains promising, particularly with its initiatives outside of e-commerce, such as Amazon Web Services (AWS). AWS continues its growth trajectory, reporting a 17% increase in revenue year-over-year, contributing significantly to Amazon's overall profit margins. This indicates a healthy diversification beyond retail, enhancing overall corporate value.

Additionally, with earnings growth and market positioning, Amazon's P/E ratio has held steady around 30, suggesting that the stock may be fairly valued at current prices. This could imply that recent negativity is already absorbed into the stock price, providing a potential buying opportunity for long-term investors.

In summary, while short-term guidance may be concerning, Amazon's strong EPS growth, commitment to essentials, and ongoing initiatives in technology suggest that the stock could rebound in the long run.

Stocks:  AMZN