This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
President Donald Trump announced a new batch of tariffs on April 2, and let's just say investors haven't been jumping with joy since then.
The S&P 500 dropped over 10% in the two days following the announcement, the Dow Jones is in a correction, and the Nasdaq Composite is officially in a bear market. Tech stocks experienced some of the harshest drops.
One tech stock that has been hit fairly hard because of the new tariffs is Amazon (NASDAQ: AMZN). Its stock was already having a tough start to 2025 (down over 13% through the first three months), but these new tariffs added more fuel to the fire.
If you're a current Amazon investor, or someone interested in investing in Amazon, here are three things you should know.
1. Amazon sellers and consumers will likely face higher prices
Let's start with the bad news: These new tariffs will probably drive up prices for both Amazon sellers and consumers, particularly with the 34% tax on goods imported from China.
Although Amazon runs its marketplace, it doesn't own all the products sold there. Many of the products sold on Amazon come from third-party sellers, and many of them get their merchandise from China. In fact, as of the end of 2024, China-based sellers made up over 50% of the top sellers on Amazon.
With the high tariff on Chinese imports, sellers can either eat the extra costs themselves or pass them on to consumers via higher prices. And considering that many sellers already operate with low margins, the latter is much more likely.
Amazon could help its sellers by freezing or reducing seller fees, but accommodating a high tariff like this is a tough ask.
2. Amazon Web Services will avoid a lot of the tariff madness
Although e-commerce is Amazon's bread and butter, its cloud platform Amazon Web Services (AWS) is the company's profit machine. In 2024, Amazon's operating income (profit from core operations) was $68.6 billion, and AWS accounted for 58% of that ($39.8 billion). AWS is a large part of why Amazon's operating income has skyrocketed over the past decade:
AMZN Operating Income (Annual) data by YCharts.
Since most of the new tariffs only affect physical goods, AWS won't have too much trouble since it's providing a digital service. There could be some additional costs for the hardware Amazon needs to operate AWS (like chips, servers, storage devices, and networking equipment), but this should only be a relatively short-term issue. And Amazon could absorb the extra costs without passing them on to AWS customers.
Amazon has been working to become less reliant on suppliers for its hardware needs (it introduced two new AI chips in November 2023), so these new tariffs could make that more of a priority.
It's not something that can happen at the snap of a finger. But the silver lining is that these increased hardware costs are also risks faced by direct competitors like Microsoft's Azure and Alphabet's Google Cloud, so they aren't unique to AWS and shouldn't disadvantage the platform.
3. Amazon isn't new to large share-price drops
Although Amazon has been one of the stock market's greatest stories in the past few decades, it hasn't always had smooth sailing. Below are some of Amazon's biggest price drops in that span:
| Date Range | Percentage Change |
|---|---|
| Dec. 1999 to Sept. 2001 | (94%) |
| Dec. 2007 to Nov. 2008 | (60%) |
| Feb. 2020 to March 2020 | (23%) |
| Jan. 2022 to Dec. 2022 | (52%) |
| Jan. 2025 to April 2025 | (23%) |
Data sources: YCharts and Google Finance. April 2025 percentage is as of April 4.
Even with those huge price drops, Amazon's stock has increased by a mind-boggling 9,960% in the past 20 years:
Does this mean you should expect the same generational returns in future? Absolutely not. However, this situation does point to the importance of keeping a long-term mindset and understanding that slumps are essentially inevitable; it doesn't mean it's time to jump ship.
Amazon will face some short-term issues, but it's still one of the world's premier companies. Nobody knows how much further the stock will drop, but now could be a good time to consider dollar-cost averaging and picking up shares while the price is the lowest it's been since August 2024.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
