Founded in 1994 by Jeff Bezos in his garage, Amazon blazed new technology trails.
The company that started as an online marketplace for books, music, and video sales has evolved into a store with everything. In addition, that company started from humble beginnings and has grown massively over the last almost 30 years to become a multinational technology company focused on e-commerce, cloud computing, online advertising, digital streaming, and artificial intelligence.
While disregarded at first by many across Wall Street, Amazon.com, Inc. (NASDAQ: AMZN) has exploded into one of the biggest technology companies in the world. Revenue has skyrocketed over the last 20 years as online sales exploded with the advent of Amazon Prime in February of 2005, and the company’s cloud computing division, Amazon Web Services, became the go-to venue to be in the cloud.
What could go wrong? With so much positive traction and an adoring group of sell-side analysts across Wall Street, what could go wrong for the technology behemoth? We took a deep dive inside the company and found five reasons investors may want to tap the brakes on the technology giant.
Amazon stock is expensive
Trading at a massive 77.4 times trailing 2023 earnings, investors are paying a pretty penny for the shares at current levels. While investors have become used to the sky-high multiples the stock has carried over the years, as the PE ratio over the last ten years is a stunning 196.66, growth can slow at any time, making the nosebleed multiple even less desirable.
The competition is knocking on the door
Whether retail sales or cloud computing, the competition is constantly after Amazon. Microsoft Corporation (NASDAQ: MSFT) is hot on its heels for cloud computing. In addition, online retailing, giants like Walmart Inc. (NYSE: WMT) and many others compete directly with Amazon.
Profits could drop big if the economy goes south
While the cloud business may not suffer as much, the massive retail silo could take a huge hit if the economy suffers a slowdown in 2024. With economists anticipating a significant drop in gross domestic product next year and the potential for a recession still in place, this could be challenging for the company.
Like other big technology stocks, Amazon has faced intense scrutiny
From data privacy to antitrust concerns and sketchy labor practices, Amazon has faced numerous regulatory issues over the years here and abroad. Many feel that the company needs to tackle these problems to avoid legal issues and a tarnished reputation.
Cybersecurity could be among the biggest challenges facing Amazon
With millions of customers daily and tens of millions of transactions processed on any given day, a massive cybersecurity breach could be dreadful for the company. Not only could the retail silo get crushed, but an attack on AWS could prove monumental if it was severe enough.
The bottom line for investors is reasonably easy to see. Like many top technology leaders, the shares are costly and have run up big this year. While Amazon has always traded at a huge multiple, it may make sense to see if the shares don’t back up some later this month or early in 2024, especially after trading 75% higher over the last year and sitting currently just below a 52-week high.
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