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2 Reasons to Buy Amazon Stock Before the Big Split, 1 Reason to Avoid

  • Amazon’s (AMZN) stock has soared since the tech giant announced a 20-for-1 stock split.
  • The company’s operations are solid, but the AWS cloud computing service is where they see the most high-growth opportunities.
  • The only con is that AMZN stock prices have jumped substantially after the stock split announcement, reducing the upside.
Woman sitting on couch using tablet with "Amazon" (AMZN) on display.
Source: Quisquilia / Shutterstock.com

Amazon’s (NASDAQ:AMZN) stock has grown consistently in recent years, which is great news for investors. It has been able to achieve this success by disrupting industries and providing a variety of products and services to its customers.

Amazon started out primarily as a bookseller. Today, it offers a range of products, including clothes, furnishings, and groceries. It also operates one of Earth’s most popular cloud services, Amazon Web Services (AWS), servicing millions of customers.

Therefore, the issue of buying AMZN stock is not “if” but a matter of when. The recent stock split announcement has again made headlines as Amazon performs extremely well. So, overall, there is more reason to buy AMZN shares right now than not.

AMZN Amazon $3,336.05

Pro: AMZN Stock Split Will Open Up the Tech Giant

Amazon’s board of directors unanimously voted in favor of a 20-for-1 stock split that will take place on June 6. The company’s stock is trading for more than $3,200 a share. That is not a price most retail investors can afford.

Therefore, if Amazon wants to introduce the stock to a larger section of investors, you can do this through the stock split. One of the benefits of a stock split is that it opens up the possibility of getting added to the Dow Jones Industrial Average.

AMZN stock cannot be added to the index at the current price without destroying its balance. However, AMZN stock will trade at $145 a pop after the stock split. It opens up the possibility of AMZN joining the Dow.

Pro: Amazon Continues to Grow at a Quick Pace

Amazon has over time evolved into a global technology company that offers many different products and services. The company’s offerings are vast: consumer electronics, consumer goods, food, apparel, furniture, toys, games and more among.

Amazon has also seen a gradual increase in its net income. By 2021, they had a $33.36 billion net income, a substantial increase from $21.3 billion in 2020. According to Amazon’s latest updates from 2021, its net sales have grown by 22% and are reported to be $469.8 billion versus $386.1 billion the year before.

One of the main reasons for Amazon’s success is its fastest-growing department: Amazon Web Services. AWS is a department of Amazon that provides cloud-based services like technology and data storage,

Amazon is the world’s largest cloud provider. AWS offers you a broad range of services — from hardware to bandwidth, storage to databases.

The company has several prominent customers, including General Electric (NYSE:GE), Netflix (NASDAQ:NFLX), Airbnb (NASDAQ:ABNB), and Nike (NYSE:NKE).

In 2021, AWS sales increased by 37%, equating to revenue of $62.2 billion. This was Amazon’s most successful segment by far. Amazon’s recurring revenue model and increased customer traffic will lead to the company’s market expansion. This is even more apparent when you look at the company’s operating loss. They would have lost $1.8 billion had this segment not grown.

Con: Stressed Macroeconomic Environment for Tech Stocks

Market trends have been pretty negative towards tech stocks at this time. The Federal Reserve has already executed one interest rate hike, and another six are around the corner. These hikes will have a major impact on the economy. The Russia-Ukraine crisis has also spooked investors into going for safer, more stable stocks.

In addition, with the increase in oil prices, Amazon’s bottom-line might come into damage. Their faster, same-day delivery service primarily uses gas-fueled trucks.

AMZN and Alphabet (NASDAQ:GOOG, GOOGL) stocks are rising exponentially due to the stock split announcement. As we have seen innumerable times with other stock splits, shares rise in anticipation of the execution. Therefore, much of the gains may already be priced in.

AMZN Stock Is an All-Weather Investment

Some investors may think that the stock market’s volatility is a bad thing. However, others may see it as an opportunity to make money. AMZN stock is an all-weather investment that can give you a good return in both bull and bear markets.

The stock split would likely help drive returns moving forward. A huge chunk of the population will now have access to shares for the first time. Apart from that, the rest of Amazon’s operations are rock solid. So, there is no change there.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/amzn-stock-2-reasons-to-buy-amazon-before-the-big-split-1-reason-to-avoid/.

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