Amazon (NASDAQ:AMZN) stock has dropped 25% off recent highs as investors have expressed concern over the stock’s valuation amid slowing growth in the retail business, but Amazon stock might still be the strongest of the FAANG group.

The stock market has been in sell-off mode since early October as investors have expressed concern over slowing economic expansion amid the threat of rising rates and bigger tariffs. With future growth being called into question, the market has thrown once-loved hyper growth tech stocks into the trash pile.

These concerns are legitimate. The valuation on Amazon stock is unarguably huge and prices in a lot of future growth. The higher discount rates go, the lower the present value of that future growth. Meanwhile, Amazon’s retail business is slowing at an alarming rate.

But despite these legitimate concerns, the long term bull thesis on Amazon stock remains compelling. In the big picture, Amazon has exposure to multiple secular growth markets, and has established a leadership position in most of them.

Thus, Amazon’s long term growth outlook remains favorable despite concerns regarding an economic slowdown and slowing growth in the retail business. Meanwhile, the valuation on the stock has crumbled to levels that seem quite attractive in a long term window.

All together, there is no guarantee that Amazon stock has bottomed, nor that it will rebound any time soon. But, the long term bull thesis does look compelling here and now. As such, for investors with a multi-year time horizon, buying into this weakness seems like the smart move.

Near Term Risks Are Very Real

There are a plethora of risks facing Amazon at the moment. Those risks won’t let up any time soon.

On the macro side, you have the threat of higher rates and bigger tariffs which are weighing on consumer sentiment, economic expansion, and equity valuations.

Amazon gets hit by all three of those negative impacts. The lower consumer sentiment goes, the less consumers spend on Amazon. Meanwhile, the slower the economy expands, the slower the rate at which businesses spend on Amazon’s cloud and advertising businesses.

And, the more equity valuations are pressured by higher rates, the more Amazon’s 80x forward earnings multiple looks relatively expensive.

On the micro side, you have slowing growth in the retail business. This is a big problem because online store sales and third-party seller services, which together make up Amazon’s ecommerce business, constitute the lion’s share of Amazon’s revenue (roughly 70% last quarter).

Online store sales growth was just 11% last quarter, versus 22% in the year ago quarter. Third-party seller services growth was 32% last quarter, versus 40% in the year ago quarter.

As this business continues to slow over the next several quarters due to heightened competition in the ecommerce space, overall revenue growth rates will slow, too. Just look at the Q4 revenue guide. Revenues are expected to grow just 15% year-over-year next quarter. In the year ago quarter, they grew by nearly 40%.

Overall, Amazon stock is plagued by very real near term risks. These risks won’t go away any time soon. Consequently, the near term outlook for Amazon stock isn’t especially favorable.

Long Term Upside Is Compelling
When it comes to Amazon stock, long term investors would be wise to remember the big picture.

Right now, there are a few bad signs on the horizon from higher rates, bigger tariffs, slower retail growth, and a supercharged near-term valuation. But, beyond those few negatives, there are a wealth of promising growth opportunities.

Amazon has exposure to multiple secular growth markets, and is either the leader or a hyper-growth player in all of them. On the cloud side, Amazon operates Amazon Web Services.

AWS is still growing at a 40%-plus rate and is actually accelerating in its growth trajectory. Over the next several years, as data becomes increasingly valuable and important and enterprises shift more data-driven workloads to the cloud, AWS will continue to grow at a robust rate.

On the digital advertising side, Amazon’s digital ad business more than doubled year-over-year last quarter. The annual run rate on this business is now $10 billion.

It was under $3 billion two years ago. But, digital ad giant Facebook (NASDAQ:FB) has $50 billion and rapidly growing in ad revenue, so the runway for Amazon’s ad business to grow from a $10 billion base is quite promising.

On the physical retail side, Amazon continues to rapidly expand its offline retail presence. As Amazon builds out thousands of cashier-less convenience stores over the next several years, this business will continue to grow by leaps and bounds and turn into a material revenue and profit driver in the future.

On top of all this, Amazon is making a big push into pharmaceuticals and logistics, two markets which present billion-dollar opportunities for Amazon in the long run.

All together, the long term Amazon growth narrative remains very promising. There are near term risks which are creating turbulence in Amazon stock here and now. This turbulence may persist given the staying power of these risks. But, recent weakness is ultimately nothing more than a healthy reset and a buying opportunity for multi-year oriented investors.

Bottom Line on Amazon Stock

The long term growth narrative supporting Amazon remains healthy, as the company has leadership-quality exposure to multiple secular growth markets like e-commerce, cloud, AI, and digital advertising. As such, while recent weakness may be here to stay for a bit longer, it is ultimately a buying opportunity for investors with a multi-year time horizon.

As of this writing, Luke Lango was long AMZN and FB.