Trump Tariffs Test Amazon, But Goldman Says E-Commerce Giant Can Roll With It

Ladies and gentlemen, buckle up! We're diving headfirst into the storm of tariffs that's sweeping through the market, and Amazon is right in the eye of it. But don't panic! Goldman Sachs is here to tell us that the e-commerce giant can weather this storm. Let's break it down!



First things first, let's talk about the elephant in the room: TARIFFS! President Trump's new tariffs have sent shockwaves through the market, and Amazon is feeling the heat. The stock has dropped nearly 7% in just two days, and the S&P 500 is in a correction. But here's the thing: Amazon has been here before, and it's come out stronger every time.

Now, let's talk about the impact. Goldman Sachs' tech analyst Eric Sheridan warns that Amazon could see a $5 billion to $10 billion annualized operating profit hit from higher first-party merchandise costs due to tariffs. That's a big number, but it's not the end of the world. Amazon has a few tricks up its sleeve to mitigate this impact.

Strategy 1: Negotiate with Vendors

Amazon is urging vendors to explore alternatives to direct price increases, such as cost savings from manufacturers or government subsidies. This could delay or reduce the immediate financial hit. But here's the catch: many vendors, especially those with thin margins, may lack flexibility. If vendors cannot offset costs, Amazon may face pressure to bear tariff costs.

Strategy 2: Raise Prices on Selected Items

Amazon may increase prices for certain products to pass tariff costs to consumers. But here's the thing: Amazon's pricing power is constrained by its "lowest-priced retailer" reputation. A Profitero study found Amazon’s prices were 14% lower than competitors in 2024, so significant price hikes might erode customer loyalty.

Strategy 3: Shift Product Mix Toward Lower-Tariff or Domestic Alternatives

Amazon could prioritize products with lower tariff rates or sourced domestically. This could reduce tariff exposure. But here's the catch: many products, especially electronics and consumer goods, rely heavily on Chinese manufacturing. Rapid shifts to domestic suppliers may not be feasible, risking reduced selection and customer dissatisfaction.

Now, let's talk about the risks. The tariff volatility is part of a "prolonged trade war," with rates subject to sudden changes. This unpredictability complicates long-term planning. Amazon's supply chain teams are already struggling with "uncertainty," and reconfiguring sourcing could strain logistics and increase costs further.

But here's the thing: Amazon has a secret weapon: AWS. While the e-commerce division faces direct challenges, AWS is less tariff-affected. In 2024, AWS contributed 58% of Amazon’s operating income. This financial buffer could help Amazon weather the storm.

Now, let's talk about the competition. Rivals like Walmart and Target face similar tariff challenges, but Amazon’s reliance on third-party sellers amplifies its exposure to price-sensitive dynamics. If Amazon cannot offset costs effectively, consumers may defect to rivals, while competitors with better tariff management or diversified strategies could gain market share.

But here's the thing: Amazon has a history of resilience. Despite a 20% year-to-date stock decline, the company has increased by a mind-boggling 9,960% in the past 20 years. This situation points to the importance of keeping a long-term mindset and understanding that slumps are essentially inevitable; it doesn't mean it's time to jump ship.

So, what's the bottom line? Amazon is in for a bumpy ride, but it's not going down without a fight. Goldman Sachs' "Buy" rating and $255 price target suggest that the market believes in Amazon's ability to navigate these challenges. So, stay calm, stay invested, and remember: Amazon has rolled with the punches before, and it will do it again!