This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Amazon (NASDAQ: AMZN) hasn't been immune to the marketwide sell-off seen lately. And some of the tariffs that President Donald Trump recently announced could heavily affect the company due to where most of the goods it sells come from.
To add another layer of complexity, Amazon management also launched a bid to buy TikTok from ByteDance.
There are lots of moving pieces with Amazon stock, making it an incredibly complex investment. But with the shares down significantly from their all-time high, should you buy one of the top stocks on the dip?
Amazon's third-party sellers are about to face some steep challenges
First, let's tackle tariffs. It's no secret that Amazon's e-commerce platform generates plenty of revenue from goods that are sourced outside of the U.S. Alongside the tariff announcement was the closing of the de minimis exemptions, which allow packages under $800 to pass through without duties. That rule has been altered to a rate of 30% or $25 per item, essentially ending the business models of companies like Shein and Temu and pushing those clients toward Amazon.
But it's not that simple. The company has many third-party sellers that also use this practice, so the price of some goods on its marketplace will rise, which could harm sales. Furthermore, Amazon's direct business could be harmed because it also sources many of its goods outside the U.S.
There are three ways the cost of a tariff will be absorbed:
- The supplier absorbs it.
- The seller absorbs it.
- The consumer absorbs it.
The cost increases will likely affect all three parties to the transaction, but at different rates. When Amazon reports its first-quarter results later this month or in early May, there likely will be some more commentary on the effects of tariffs. But until then, investors are left assuming the worst-case scenario.
However, there's an important factor that investors are forgetting.
AWS isn't as affected by tariffs as the commerce side
Amazon's e-commerce business is the most consumer-facing segment, but it's far from the most important. Amazon Web Services (AWS) is what I would consider the most important division because it produced 58% of the company's operating profits in 2024.
AWS won't be as affected by the tariffs, since it's providing computing power over the cloud to clients. This should be investors' focus because it is both the growth driver and largest profit maker for Amazon.
However, it's not completely immune from tariffs, either. Management has to get the computing power for its servers from somewhere, and a large majority of chips that power GPUs come from Taiwan, which was hit with a 32% tariff.
There was a specific carve-out for semiconductors in the announcement from the White House, but there will likely be some chip-specific tariffs that come at a later date. Part of the pricing of cloud computing is incorporating the replacement costs of the hardware into the base rate, so the cost of using AWS will likely rise.
There's huge demand for cloud computing power, and filling these data centers with GPUs will become more pricey, but it's still the same right now.
Nonetheless, I think cloud computing will be a strong point for Amazon since there is a general migration to the cloud and many AI workloads that are coming online. This will boost Amazon's stock over the long term, but likely won't save it in the short term as the market sells off now that the base tariff rate is known.
So, would I buy the stock tomorrow? Probably not. But in a few weeks, after the dust has settled in the market, I think Amazon will be a great buy at a huge discount.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
