Amazon in 2025: A Stock to Buy or Avoid?

As we approach the end of 2024, investors are looking ahead to 2025, wondering which stocks will continue to soar and which ones might falter. Amazon (AMZN), the e-commerce and cloud computing giant, is a prime candidate for consideration. With a market cap of over $1.97 trillion and a history of impressive growth, Amazon has been a favorite among investors. But will this trend continue in 2025? Let's explore the arguments for and against buying Amazon stock in the new year.



Amazon's stock has been on a tear in recent years, with a 81% gain in 2023 and a projected close to 50% in 2024. However, some investors might be concerned about the stock's valuation. Amazon's shares trade at nearly 36 times forward earnings, making it the second-most expensive "Magnificent Seven" stock behind only Tesla. This high valuation could be a red flag for some investors, especially in an uncertain economic environment.



Despite the high valuation, Amazon's earnings and free cash flow have been growing robustly. In the third quarter of 2024, the company reported earnings of $15.3 billion, up nearly 55% year over year. Its free cash flow nearly tripled year over year to $44.9 billion. These strong financials suggest that Amazon's growth is far from over.

One of the main reasons for Amazon's continued success is its expansion into new sectors. The company's push into artificial intelligence (AI) and healthcare could generate new revenue streams and drive growth in 2025. Amazon SageMaker, the company's AI tool, was named one of the top AI tools of 2024 by AI Magazine. Additionally, Amazon's healthcare initiatives, such as Amazon Care and PillPack, have shown promising growth.



Another key driver of Amazon's growth is its cloud services, particularly Amazon Web Services (AWS). Despite increased competition from Microsoft Azure and Google Cloud, AWS maintains a substantial market share, controlling roughly 33% of the cloud infrastructure services market. CEO Andy Jassy has noted a significant reacceleration of AWS growth over the past four quarters, with an annualized revenue run rate of $110 billion. As cloud adoption continues to rise, Amazon's strong position in this sector will likely translate to consistent growth in 2025.

However, Amazon is not without its challenges. The company faces regulatory pressures, particularly around antitrust issues. In 2024, a Senate committee led by Bernie Sanders found that Amazon manipulated injury data to downplay safety risks in its warehouses. Additionally, Amazon faces increased scrutiny from regulators, especially around antitrust issues and competition in the cloud computing space. These pressures could lead to potential fines, operational changes, or even divestments, impacting Amazon's bottom line and stock performance.



In conclusion, Amazon's stock performance in 2025 will depend on several factors, including its ability to maintain its competitive edge in the face of increasing competition, its expansion into new sectors, and its ability to navigate regulatory pressures. While the high valuation might give some investors pause, Amazon's strong financials and growth prospects suggest that it could be a solid long-term investment. As always, it's essential to do your own research and consider your risk tolerance before making any investment decisions.