Why Wall Street is Wrong About Amazon's (AMZN) Stock Dip

Business Insider

2 days ago

What a ride it's been! After a steady climb from April's lows to what looked like a new all-time high, Amazon stock (AMZN) got slammed on strong volume, following its Q2 earnings report, as investors reacted to cautious guidance and concerns over heavy AI-related spending.
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But take a closer look, and the results tell a different story. Amazon delivered strong performance across domestic and international retail, AWS, and profitability. And at current levels, the stock still looks reasonably valued. That's why I'm staying Bullish with a view of buying the dip in AMZN stock.
Retail Keeps the Engine Humming
Investors tend to focus all their attention on AWS when assessing Amazon, yet its retail business, both in North America and internationally, showed some serious muscle in Q2. North America sales climbed 11% year-over-year to $100 billion, while the international segment surged 16% to $36.8 billion (11% when adjusted for currency swings).
The company's 4-day 'Prime Day' event was a blockbuster, setting records for sales and new Prime sign-ups, proving Amazon still dominates in the e-commerce space. Notably, CEO Andy Jassy highlighted more thoughtful inventory placement, which cut delivery times and boosted customer satisfaction. Internationally, Amazon's pushing hard with same-day delivery expansions, reaching smaller cities and rural areas, which is paying off with faster growth than in North America.
The deployment of AI across the shopping experience also appears to be bearing fruit. The company's AI-driven tools, such as a generative AI that reads product reviews aloud, are stimulating faster decision-making during shopping. It's very endearing that despite being a pretty mature business at this point, Amazon's retail arm isn't only growing but also continuously evolving, which, in my view, positions it for further market share gains, particularly as competitors like Temu face tariff challenges.
AWS: The Cloud Keeps Soaring
Of course, AWS remains the crown jewel, raking in $30.9 billion in Q2, up 17.5% from last year. Now look, this figure wasn't as impressive as the blistering growth of Microsoft's Azure (39%) or Google Cloud's (32%), but at the end of the day, AWS is still the big dog in cloud computing, with a $189 billion backlog signaling long-term demand. Jassy emphasized new AI offerings like Bedrock AgentCore and partnerships with heavyweights like PepsiCo (PEP) and Airbnb (ABNB), which are leaning on AWS for their cloud needs.
Last week's earnings call also highlighted an interesting aspect of AMZN's business: custom silicon, such as its 'Trainium' custom AI chips, that have 'impressively emerged as the backbone for Anthropix newest generation cloud models,' according to Jassy.
The CEO also noted that most IT spending still happens on-premise, but as companies shift to the cloud (especially for AI), AWS is poised to ride that rising trend. And despite some margin pressure from heavy AI investments, AWS's operating income still hit $10.2 billion, proving it's still a cash cow.
Profitability Spikes Higher
Speaking about operating income, Amazon's total operating income for the quarter jumped 31% to $19.2 billion, blowing past the $16.7 billion that analysts expected. North America's operating margin hit 7.5%, up 190 basis points, while the international segment's margin soared to 4.1%, a 320-basis-point leap. Advertising was a star here, with revenue up 22% to $15.7 billion, driven by sponsored products and new partnerships with Roku (ROKU) and Disney (DIS).
More innovative logistics played a significant role, too. By optimizing inventory placement, Amazon effectively slashed outbound shipping costs while boosting delivery speeds, with unit growth outpacing shipping cost growth by a wide margin. CFO Brian Olsavsky also pointed to robotics and automation in fulfillment centers, which are driving down costs while handling higher volumes. In my view, these efficiencies, paired with high-margin businesses like AWS and ads, are turning Amazon into a leaner, meaner profit machine.
Value Still Shines Despite AMZN's Guidance Jitters
Last week's market tantrum was rather revealing. Amazon's Q3 outlook implied sales 10-13% growth and operating income of $15.5 billion to $20.5 billion, slightly above analyst midpoints but not the blowout some hoped for. Investors also seem to be nervous about the $100 billion AI spending spree and potential tariff impacts, which could squeeze margins if costs are passed to consumers. Jassy admitted tariff uncertainty is a wildcard, but I think that Amazon is diversifying its supply chain to keep prices low.
In any case, I believe that at 33x this year's expected EPS, Amazon's stock looks rather reasonably priced against its growth trajectory. With AI investments set to fuel long-term growth in AWS and retail, this dip feels like a buying opportunity for patient investors. In the meantime, with EPS expected to grow between 15% and 20% per annum at least over the medium term, today's multiple offers a decent margin of safety, in my view.
What is the Price Target for AMZN in 2025?
There are 45 analysts offering price targets on AMZN stock via TipRanks — with an overwhelming bullish consensus. Currently, the stock carries a Strong Buy consensus rating based on 44 Buy and one Hold ratings over the past three months. At $265.16, AMZN's average stock target implies almost 25% upside over the next twelve months.
Amazon's Post-Earnings Dip Means Attractive Prices
Despite the post-earnings sell-off, Amazon's Q2 results reflect solid execution—strong retail growth, continued AWS dominance, and profitability firing on all cylinders. While cautious guidance and AI-related spending gave the market pause, the underlying numbers paint a much more positive picture. With a valuation that still looks reasonable and analysts projecting double-digit upside, this pullback could be a compelling opportunity to get in on a stock well-positioned for long-term growth.