Over the last few years, a small army of critics has descended on Amazon (NASDAQ:AMZN) stock. Financial analysts fear it has lost its momentum. Environmentalists criticize its use of energy. Privacy advocates say it cares nothing about their rights. Through it all, Amazon has remained the largest holding in my retirement account. I have seen this movie before.
In the 1980s, IBM (NYSE:IBM) was the target of everyone’s ire. In the 1990s, this switched to AT&T (NYSE:T). In the 2000s, Walmart (NYSE:WMT) drew the haters. During the last decade, it was Dollar General (NYSE:DG). When you have a huge company, when you dominate an economy, they don’t want to let you do it.
Where Haters Are Right About AMZN Stock
Nothing grows to the sky, not even Amazon. Growth has slowed this decade, from 37% in 2020 to just 9% last year. (It’s expected to slow further this year.) Operating cash flow last year was nearly flat. Amazon laid off 18,000 workers early this year.
It seems AMZN stock can be hit by economic cycles just like other retailers. Just like the other Cloud Czars, Amazon has also faced higher costs this year thanks to AI. Nvidia (NASDAQ:NVDA) can get what it wants for its chips because, as I’ve noted, it controls the software stack.
When sales pass $500 billion/year, things are never perfect. Just this fall Amazon has had layoffs in its games unit, its music business, at its Alexa division even at its crown jewel, Amazon Web Services.
Amazon has had to play catch-up on AI and reconfigure its distribution system. It closed 99 logistics centers through May. Amazon has been hit by thieves who abused its third-party sales system, ending free returns. It raised the cost of Amazon Prime in 2022, and next year will charge an extra $3/month to subscribers who want to avoid ads on Prime video.
Where Haters are Wrong
First, you need scaled computing and warehousing to deliver low costs. Therefore, Amazon built its cloud data centers and warehousing systems in the first place. Second, if I’m to deliver personal service to you, I must know about you. This is as true for Amazon as the bartender who knows how you like your martini.
Amazon itself is one of the great miracles of the 21st century. An order taken in the morning may be fulfilled later the same day. Amazon Web Services alone may be worth twice as much as the entire company.
I have been as hard on Bezos’ successor, Andy Jassy, as anyone. So let me say this simply. I was wrong. All his 2023 moves make sense, both the cutbacks and the price hikes. Once that $3/month Prime charge comes in, Jassy will know how many people are getting Prime for the content and how many just want free shipping.
The Bottom Line
AMZN stock will keep growing. Sales, profits, and cash flow will improve. AWS will keep its lead in the cloud. The entire company will continue building on its global footprint. I even expect Alexa to make a comeback. This time there will be some real intelligence behind her, not just a list of my orders and suggestions for up-sells.
There’s a lot of room for improvement at Amazon, which is a good thing. Books, even e-books, are now treated as an afterthought. Government regulators are going to come after Amazon hard. So will environmentalists and privacy advocates.
But no other Cloud Czar is as diversified as Amazon. None is better equipped to weather the storms. And we haven’t even mentioned health care.
As of this writing, Dana Blankenhorn had LONG positions in AMZN and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
