Surging in the past twelve months thanks to pandemic tailwinds, what’s next for Amazon (NASDAQ:AMZN)? Like its FAANG peers, Amazon stock saw a nice boost on inauguration day. But, it’s debatable whether this optimism is a sign big tech/e-commerce stocks will keep on winning. Or, if after their incredible run, high-flyers like this one will give up some of their gains in the coming months.
On one hand, Amazon looks set to have another banner year. Sell-side analysts revenue to rise from around $380 billion to $449.6 billion this fiscal year (ending Dec 2021). Earnings-per-share (EPS) is projected to climb nearly 30%, from $34.71 per share, to $44.96 per share.
On the other hand, one can argue there’s more on the table now to sink Amazon stock, rather than to send it higher. Increased government scrutiny of big tech’s power could weigh down shares going forward. So could the potential continued rotation out of tech stocks, and into stocks in sectors hard-hit by the novel coronavirus, which have yet to recover to their pre-pandemic prices.
Yet, while shares could take a breather (or head lower) in the near-term, this remains a solid long-term buy. Don’t expect the blockbuster returns we’ve seen in recent years. But, consider this a buy on any major pullback.
The Growth Story Remains for Amazon Stock
Covid-19 may have given Amazon’s main businesses (e-commerce, cloud computing, streaming) a shot in the arm. But, don’t expect the high levels of growth we saw in 2020 to slow down in the coming year. Even if the much talked-about “stay at home economy” enters the history books (hopefully) this year.
What do I mean? Firstly, there’s more in store for the company’s flagship U.S. e-commerce unit. After growing its market share to 39% of U.S. online retail sales, Amazon is setting its sights on the next frontier—logistics. Making big moves to grow its fulfillment capabilities, the company continues to be a long-term threat to incumbent logistics leaders like FedEx (NYSE:FDX) and UPS (NYSE:UPS).
Secondly, growth in its cloud computing unit (Amazon Web Services, or AWS) remains strong. As InvestorPlace’s Muslim Farooque wrote Jan 13, AWS is set to grow another 37% in 2021. Microsoft’s (NASDAQ:MSFT) unit may be catching up, but AWS continues to dominate the market.
Thirdly, there’s significant growth runway for the company’s myriad of secondary business units. I’m talking about well-known ones like advertising and streaming. But also, less-discussed ones, such as artificial intelligence (AI), which our own Tom Taulli detailed on Jan 18.
In short, there’s plenty on the table to send Amazon’s top and bottom lines further upward. However, this does not guarantee shares will continue to surge higher in the near-term. In fact, even after slightly pulling back from its all-time highs, we could see this “hot stock” head lower in the coming months.
Why The Stock Could Flounder (or Head Lower) in The Near-Term
Don’t get me wrong, Amazon stock isn’t fast headed for a big fall. But, while the company’s various strengths will help it stay in the “trillion dollar club” (stocks with a market capitalization of $1 trillion or higher), there is a risk shares could pullback in the coming months.
How so? Two reasons. First, the potential for increased scrutiny of big tech by the U.S. federal government. Sure, big tech may have by-and-large supported President Biden when he ran for office. But, that does not guarantee the incoming administration will only enact policies in this powerful sector’s favor. Admitedly, most of the talk about “big tech regulation” has centered around online speech. While Amazon has played a minor role in recent events, it doesn’t really have a dog in this fight, relative to Facebook (NASDAQ:FB) and Twitter (NASDAQ:TWTR).
Yet, there’s still the risk the federal government goes after Amazon on antitrust grounds. Sure, the probability of this really hurting the company long-term is low. But, it could still push shares lower, as uncertainty potentially weighs negatively on the stock.
Second, the “rotation trade” risk. That is to say, investors continue to move out of richly-priced big tech stocks, and into cheaper stocks that could see big recoveries as Covid-19 enters the rearview mirror. Again, I don’t see this materially impacting Amazon’s stock price. But, it could limit the potential for gains in the short-term.
Bottom Line: Buy on Any Weakness
Since soaring in mid-2020, shares in Amazon have held steady near current price levels. But, while the company’s growth story remains in motion, there are factors at play that could impact stock performance as 2021 plays out.
However, use this to your advantage. As its long-term prospects remain strong, consider any weakness prime time to enter a position in Amazon stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.