Another year, another huge gain for Amazon (NASDAQ: AMZN). Shares of the e-commerce and cloud services giant skyrocketed 81% in 2023. The stock is on track to finish 2024 up close to 50%.
But should you buy Amazon stock in 2025? Here are the arguments for and against this high-flying stock.
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Let’s start with the negative case against Amazon. One side effect of back-to-back years of huge gains is that the stock’s valuation could be worrisome for many investors. Amazon’s shares trade at nearly 36 times forward earnings. That multiple makes Amazon the second-most expensive “Magnificent Seven” stock (trailing behind only Tesla.)
Another reason to be leery of buying Amazon stock in the new year is the economic uncertainty. We’ve already seen the Federal Reserve indicate tentativeness about the number of interest rate cuts on the way in 2025. If the Fed becomes more nervous about the U.S. economy, it could signal bad news for Amazon.
Many investors also seem to be completely discounting the potential impact of steep tariffs President-elect Trump has pledged to impose. Those tariffs could cause the prices of many products to rise. If inflation resurges, consumer spending could decline and hurt Amazon’s business.
There are some signs that the artificial intelligence (AI) boom that boosted Amazon Web Services (AWS) could be slowing down as well. Alphabet and Google CEO Sundar Pichai even stated earlier this month, “I think the progress is going to get harder.” He added, “[T]he low-hanging fruit is gone.” This could translate to slower growth for AWS and its cloud services peers.
The valuation criticism about Amazon isn’t as strong as it might seem at first glance. For one thing, the company’s earnings multiples have been even higher in the past, with its share price continuing to climb.
More importantly, though, Amazon’s earnings and free cash flow are growing more robustly than they have in a long time. For example, 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.
Maybe economic tumult will negatively impact Amazon in 2025. However, it’s also possible that the good times will continue to roll for the company over the near term. Amazon will almost certainly continue to prosper over the long term.
CEO Andy Jassy routinely talks about his expectations for the cloud services market. Jassy believes that the current mix of around 85% of global IT spending on-premises with the rest in the cloud will reverse over the next 10 years or so. AWS is poised to benefit from this shift.
Jassy also predicts a similar trend for e-commerce. He estimated during Amazon’s Q3 earnings call that between 80% and 85% of retail is still in physical stores, with the remainder e-commerce. Jassy said he thinks “that equation is going to flip in the next 10 to 20 years.” As the leader in e-commerce, Amazon should be one of the biggest winners if he’s right.
Not everyone agrees that AI progress is slowing, either. OpenAI CEO Sam Altman recently posted on X, “There is no wall.” AI agents could be the next big thing in AI. You can bet Amazon will be in the thick of the race, if so.
I think there are two questions with different answers:
Will Amazon stock rise in 2025?
Should you buy Amazon stock in 2025?
The answer to the first question is probably unfulfilling, but true: No one knows for sure. I think the chances are good that Amazon stock will increase in the new year, but there are simply too many variables that could present problems.
As for the second question, I think the answer is yes — at least for many investors. If you want income, Amazon won’t be for you, since it doesn’t pay a dividend. However, if you seek growth and have a long-term perspective, this stock should remain one of the better picks on the market, in my view.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Tesla. The Motley Fool has a disclosure policy.
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