Why Amazon stock tanked today

Slowing online-sales growth rattled investors. But the sell-off may have gone too far.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened 

Shares of Amazon.com (NASDAQ: AMZN) fell 7.5% on Thursday, furthering the recent plunge in the e-commerce-titan's stock price. 

So what 

E-commerce companies are struggling. That's the upshot of a slew of recent earnings reports from online retailers and marketplaces.

E-commerce businesses are facing a host of challenges right now. Inflation -- including sharply higher food, energy, and housing costs -- is taking a toll on the U.S. consumer. Shoppers in many other countries aren't faring much better, and that's forcing consumers around the world to pull back on their spending. And when they do shop, many people are doing their buying inside traditional retail stores, now that coronavirus-related restrictions in many areas have been lifted.

Add it all up, and we get a day like today. Leading e-commerce companies Shopify, Etsy, and Wayfair saw their stocks plunge by roughly 15%, 17%, and 26%, respectively. And industry leader Amazon.com sank along with them.

Now What

Was the steep decline in Amazon's stock price warranted? 

It's true that, like its competitors, Amazon's online retail growth is slowing. However, unlike its rivals, e-commerce is not Amazon's primary profit generator. Cloud computing is where it makes the bulk of its profits -- and that business is performing exceptionally well.

Amazon Web Services (AWS) saw its revenue surge 37% to $18.4 billion in the first quarter, while its operating income soared an even more impressive 57%, to $6.5 billion. With countless businesses set to migrate their operations to the cloud in the coming decade, AWS should remain a powerful source of profit growth for many years to come.

Investors appear to be focusing too much on Amazon's near-term e-commerce challenges and overlooking its massive expansion opportunity in cloud services. Today's sell-off, in turn, was likely overdone. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Joe Tenebruso has the following options: long January 2024 $2,000 calls on Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Etsy, and Shopify. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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