Amazon (AMZN) Stock: The Walmart CEO Meeting That Saved Amazon Billions
TLDR
Amazon stock is down 28% from its recent all-time high due to tariff concerns
Walmart CEO Doug McMillon and other retail leaders pushed Trump to reduce China tariffs, benefiting Amazon without its direct involvement
AWS generates over half of Amazon’s operating income despite representing only 16.8% of total revenue
Wall Street expects Amazon to report 38.7% earnings growth in Q1 2025
Amazon’s current P/E ratio of 31.1 is significantly below its five-year average of 83, suggesting potential value
Amazon has experienced a turbulent period in the stock market, falling 28% from its all-time high following President Trump’s April 2nd announcement of sweeping tariffs on imported goods. However, the e-commerce giant saw a 7% rally this week after Trump hinted at cutting the 145% tariffs on Chinese imports.
This potential relief came not from Amazon’s own lobbying efforts but from a meeting between the President and retail leaders including Walmart CEO Doug McMillon, Target’s Brian Cornell, and Home Depot’s Ted Decker. According to Axios, these executives warned that the tariffs were driving up prices and could lead to empty shelves across American stores.
The talks couldn’t have come at a better time for Amazon. The company is particularly vulnerable to tariffs because approximately 70% of products sold on its platform are made in China.
Unlike Walmart, which controls much of its own supply chain and derives about 60% of its U.S. sales from groceries (mostly sourced domestically or from Latin America), Amazon relies heavily on third-party sellers who set their own prices.
These sellers had already begun raising prices following the implementation of Trump’s tariff hikes. The financial pressure on these merchants could also have impacted Amazon’s $56 billion advertising business, as sellers might cut their ad spending when margins are squeezed.
Amazon Web Services: The Profit Powerhouse
One bright spot amid the tariff concerns is Amazon Web Services (AWS), the company’s cloud computing division. AWS isn’t directly affected by trade tensions because it primarily sells digital services rather than physical goods.
This is particularly important because AWS generated a record $107.5 billion in revenue during 2024, accounting for more than half of Amazon’s entire operating income of $68.6 billion. This is despite representing just 16.8% of the company’s total revenue of $637.9 billion.
AWS has been aggressively expanding into artificial intelligence, which CEO Andy Jassy has described as a “once-in-a-lifetime business opportunity.” The platform is tackling AI across three layers: data center infrastructure, large language models, and software.
The company has developed its own data center chips called Trainium to reduce AI training costs by up to 40% compared to third-party suppliers like Nvidia. It has also created its own family of language models called Nova, which can offer cost savings of 75% compared to other vendors.
Wall Street Expectations for Q1 Earnings
Amazon is scheduled to release its first-quarter 2025 financial results on May 1, which could serve as a positive catalyst for the stock. Wall Street analysts expect the company to deliver $1.36 in earnings per share, representing a 38.7% increase from the same period last year.
Investors will be watching closely for any updates on how AWS is performing, particularly whether it has maintained the 19% quarterly revenue growth it achieved throughout last year. There will also be keen interest in how much its AI services are contributing to that growth.
Another focus will be Andy Jassy’s strategy for navigating the tariff situation. The short-term performance of Amazon stock could hinge on whether analysts are satisfied with his approach.
Even with these challenges, Amazon has been working to improve efficiency in its e-commerce business. In 2023, it divided its U.S. logistics network into eight distinct regions, allowing for more strategic product stocking based on regional popularity. This has lowered costs and improved delivery times.
Investment Value After the Dip
The recent decline in Amazon’s stock price has created what many analysts see as a buying opportunity. The stock now trades at a price-to-earnings (P/E) ratio of 31.1, which is well below its five-year average of 83.
Looking ahead to 2026, Wall Street expects Amazon to deliver $7.52 in earnings per share, which places the stock at a forward P/E ratio of just 22.9. Based on these projections, the stock would need to climb by 35.8% by the end of next year just to maintain its current P/E ratio.
This attractive valuation, combined with Amazon’s long-term track record of success, has many investors considering whether to buy before or after the upcoming earnings report. Given that Amazon’s stock has soared by 191,000% since its 1997 IPO, many believe the company’s long-term trajectory remains positive regardless of short-term fluctuations.
The contrast between Amazon’s 7% rally and Walmart’s more modest 2% gain this week highlights their different positions in the tariff debate. Walmart is better insulated because of its focus on groceries and domestic sourcing, while Amazon stands to gain more from any tariff relief.
For investors weighing these two retail giants, the coming weeks may provide more clarity as tariff negotiations continue and Amazon releases its Q1 results. Until then, the market appears to be betting that the worst of the tariff impact may be avoided.
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Filed under: News - @ April 24, 2025 12:29 pm