Amazon Stock: Analyzing the Buy, Sell, or Hold Decision

Amazon: Buy, Sell or Hold? | The Motley Fool

Amazon shares have climbed in the double digits so far this year. Amazon (AMZN -0.29%) has posted solid gains this year -- up around 30% -- and over the long term thanks to its leadership in the high-growth markets of e-commerce and cloud computing. The company, known for bringing in billions in revenue and profit, even showed that it has what it takes to recover and grow after traveling through tough times: Higher interest rates and the general economic situation drove the company to a loss in 2022, but Amazon revamped its cost structure to turn things around -- and then roared back to growth last year. All of this sounds fantastic, but the gains also have driven up Amazon's valuation -- and it's important to remember that today, at a market cap of more than $2 trillion, Amazon is less likely to quickly double or triple in value than a younger, less-expensive growth stock. Considering this picture, should you buy, sell, or hold Amazon stock? Let's find out. As mentioned, Amazon has built a leading position in both e-commerce and cloud computing -- and the good news is this is likely to last. In e-commerce, Amazon has a moat, or competitive advantage, and this is the company's extensive infrastructure, allowing it to fulfill most of your shopping needs, at often the best prices around. You know that you'll find most of what you need on Amazon, and the company has the fulfillment network to deliver the order to you, sometimes in a matter of hours. Amazon continues to add features to its Prime subscription service and is set to host its 10th Prime Day sales event next week. The e-commerce giant doesn't regularly report its number of Prime members, but as of early 2021, the company said it had more than 200 million worldwide. With this infrastructure and membership level, Amazon is well-positioned to benefit from future e-commerce growth. As for cloud services, Amazon is the No. 1 provider worldwide, and the company's investments in artificial intelligence (AI) should broaden this massive revenue stream. Prior to the AI boom, Amazon Web Services (AWS) already was Amazon's biggest profit driver, and now, with the addition of various AI services for customers, AWS has reached a $100 billion annual revenue run rate. All this adds up to major potential for growth ahead, meaning it's a great idea to buy Amazon stock or hold on to the shares you already own. Amazon's earnings growth over time hasn't gone unrewarded. Investors have piled into the shares, leading the stock to a more than 1,100% gain over the past decade. But this has driven up valuation. Amazon shares today trade for 43x forward earnings estimates. This isn't Amazon's highest ratio in the recent past -- it traded for more than 50x late last year -- but it isn't the lowest either. Earlier this year, you could have picked up shares of Amazon for just a little more than 30x forward earnings estimates. These companies, too, are investing heavily in AI and should benefit as the market develops -- so investors may opt to buy these stocks as a way to bet on AI growth. That, and growth investors' quest to find new higher-growth players, could weigh on Amazon's potential for gains in the months to come and even beyond. All this means investors who have held Amazon for a while and reaped rewards may consider selling their shares. The best decision depends, in part, on your investment strategy. For example, if you've held Amazon shares for many years and need funds to invest in other stocks, you may consider reducing your position. This will help you access new opportunities and further diversify your holdings. But if you don't necessarily need to free up funds for investing, I favor holding on to Amazon stock right now -- and even buying shares. Yes, Amazon trades at a premium compared to cloud rivals, but this company's earnings successes across two major businesses -- and the fact that its market position sets it up for more long-term earnings growth -- mean it's worth the price.

Amazon: Buy, Sell or Hold?

Amazon (NASDAQ: AMZN) has posted solid gains this year -- up around 30% -- and over the long term thanks to its leadership in the high-growth markets of e-commerce and cloud computing. The company, known for bringing in billions in revenue and profit, even showed that it has what it takes to recover and grow after traveling through tough times: Higher interest rates and the general economic situation drove the company to a loss in 2022, but Amazon revamped its cost structure to turn things around -- and then roared back to growth last year. All of this sounds fantastic, but the gains also have driven up Amazon's valuation -- and it's important to remember that today, at a market cap of more than $2 trillion, Amazon is less likely to quickly double or triple in value than a younger, less-expensive growth stock. Considering this picture, should you buy, sell, or hold Amazon stock? Let's find out. As mentioned, Amazon has built a leading position in both e-commerce and cloud computing -- and the good news is this is likely to last. In e-commerce, Amazon has a moat, or competitive advantage, and this is the company's extensive infrastructure, allowing it to fulfill most of your shopping needs, at often the best prices around. You know that you'll find most of what you need on Amazon, and the company has the fulfillment network to deliver the order to you, sometimes in a matter of hours. Amazon continues to add features to its Prime subscription service and is set to host its 10th Prime Day sales event next week. The e-commerce giant doesn't regularly report its number of Prime members, but as of early 2021, the company said it had more than 200 million worldwide. With this infrastructure and membership level, Amazon is well-positioned to benefit from future e-commerce growth. As for cloud services, Amazon is the No. 1 provider worldwide, and the company's investments in artificial intelligence (AI) should broaden this massive revenue stream. Prior to the AI boom, Amazon Web Services (AWS) already was Amazon's biggest profit driver, and now, with the addition of various AI services for customers, AWS has reached a $100 billion annual revenue run rate. All this adds up to major potential for growth ahead, meaning it's a great idea to buy Amazon stock or hold on to the shares you already own. The case to sell Amazon's earnings growth over time hasn't gone unrewarded. Investors have piled into the shares, leading the stock to a more than 1,100% gain over the past decade. But this has driven up valuation. Amazon shares today trade for 43x forward earnings estimates. This isn't Amazon's highest ratio in the recent past -- it traded for more than 50x late last year -- but it isn't the lowest either. Earlier this year, you could have picked up shares of Amazon for just a little more than 30x forward earnings estimates. These companies, too, are investing heavily in AI and should benefit as the market develops -- so investors may opt to buy these stocks as a way to bet on AI growth. That, and growth investors' quest to find new higher-growth players, could weigh on Amazon's potential for gains in the months to come and even beyond. All this means investors who have held Amazon for a while and reaped rewards may consider selling their shares. So what's the best decision -- buy, sell, or hold? The best decision depends, in part, on your investment strategy. For example, if you've held Amazon shares for many years and need funds to invest in other stocks, you may consider reducing your position. This will help you access new opportunities and further diversify your holdings. But if you don't necessarily need to free up funds for investing, I favor holding on to Amazon stock right now -- and even buying shares. Yes, Amazon trades at a premium compared to cloud rivals, but this company's earnings successes across two major businesses -- and the fact that its market position sets it up for more long-term earnings growth -- mean it's worth the price. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Amazon wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $780,654!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.