Amazon (NASDAQ:AMZN) was arguably the leading stock in the market for many years. One of the FAANGs, Amazon stock was often the strongest performer of all. Amazon shares rallied from just $300 five years ago to as much as $2,000 recently, making for more than a quintuple in just a few years.
It’s been an amazing ride, but the tide has turned. Amazon has stalled out south of the $2,000 mark in recent months. Amazon hit $2,050 per share, in fact, last year, becoming the world’s most valuable company. It also reached the rarefied air of having a $1 trillion market cap. Since then, however, Amazon has lost both its $1 trillion market cap and its status as the world’s biggest company; Microsoft (NASDAQ:MSFT) has surpassed them on the latter front.
Amazon stock has now topped out around the $2,000 mark on three separate occasions. Each time, it has fallen back sharply. This has led technical traders to suggest that Amazon stock will be in trouble if it can’t make new highs soon, and the technical resistance keeps getting stronger.
There’s a good fundamental reason for Amazon’s weakness as well. Investors are growing increasingly concerned about the government’s efforts to regulate big tech in general and Amazon in particular. Politicians on both sides of the aisle are suggesting that Amazon hasn’t played by the rules and that big changes are necessary.
Amazon: Destroyer of Retail
According to high-ranking politicians, Amazon’s retail business has taken unfair advantage of the competitive marketplace to push rivals around and cause mass bankruptcies. Consider the frank message that Secretary of the Treasury Steve Mnuchin delivered regarding Amazon recently:
“I think if you look at Amazon, although there are certain benefits to it, it destroyed the retail industry across the United States so there’s no question they’ve limited competition.”
In fact, Mnuchin came down more strongly against Amazon than even Google (NASDAQ:GOOGL). It’s hard to imagine the Trump administration not taking steps to regulate Amazon harshly, tax it, or break it up entirely. In particular, if Trump is re-elected, Amazon is likely heading for trouble.
Then again, many of the Democrats aren’t much more hospitable. Internet favorite Andrew Yang has made taxing Amazon and giving the proceeds to ordinary Americans the centerpiece of his campaign, but he’s far from the only Democrat on this agenda.
Elizabeth Warren has regulatory plans for big tech. And Bernie Sanders agrees with this line of reasoning as well, he talks at length about how Amazon has avoided taxation and what needs to be done to fix it. Sanders also specifically targeted Amazon along with Walmart (NYSE:WMT) during his recent campaign for higher minimum wages.
Amazon ups Its Lobbying Game
AMZN stock has soared so spectacularly in the past because the company was a leader in innovation. But like so many companies that pioneered an industry’s development, over time, the innovator gradually shifts towards defense. Once a company gets huge, it often hunkers down and starts defending its turf against younger, more nimble companies.
It appears Amazon is heading in this direction. According to Bloomberg, Amazon has massively stepped up its lobbying game. It has boosted political lobbying expenses from $3 million to more than $14 million annually over the past decade.
It trails only Google in lobbying dollars among big tech. And Amazon has brought in big guns, including Jay Carney (President Obama’s press secretary) to head up its efforts.
And think about the HQ2 search process. Amazon made this big show of giving dozens of cities a supposed chance to win Amazon’s next location, bringing thousands of high-paying jobs. It seems Amazon wasn’t serious about that though, and just wanted to play smaller cities off each other to get better offers.
In the end, Amazon picked America’s two most influential cities, New York and Washington, and then pulled out of New York when it didn’t get enough tax breaks.
Amazon has gone from scrappy upstart to connected power player in no time. That’s not necessarily bad for Amazon’s prospects, but it does signal the end of AMZN stock as a disruptive growth play.
Amazon is fighting to protect its monopoly now, using every political cudgel at its disposal. It’s no accident that Jeff Bezos bought The Washington Post and also a $23 million house in D.C. in recent years.
Amazon Stock Verdict
There are a lot of reasons to avoid AMZN stock right now. The company’s growth engine is slowing down, and its rigorous effort to lobby Washington shows that Amazon now has to play defense. In addition to the company’s regulatory worries, there are other negative factors in play.
Jeff Bezos has been unloading Amazon stock by the billions in recent months. Presumably, his ex-wife may be a seller of Amazon stock as well; between the two of them, they own more than 10% of the company and will be big sellers of the stock over time.
As he said recently: “The only way that I can see to deploy this much financial resource is by converting my Amazon winnings into space travel.” He’ll be selling a lot of Amazon stock in the coming months and years. Space exploration isn’t cheap.
The market for tech stocks in general also appears to be weakening. The cloud names and FAANG stocks have both shown vulnerability in recent months. With insiders selling stock and the government cracking down on the company, prepare for Amazon stock to underperform in coming months.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
