Is Amazon a Good Buy for 2023? | The Motley Fool (2024)

The last year has been challenging for Amazon (AMZN -1.04%). Facing macroeconomic pressures and some industry-specific headwinds, the company's stock has lost roughly 42% of its value over the last year, and shares are trading down 49% from their high.

But while the company's near-term business outlook is being shaped by some very real challenges, it would be a mistake to think that the e-commerce and cloud-services giant's best days are now in the rearview mirror. Read on to see why I think Amazon stands out as one of the best stocks to buy in 2023.

Why is Amazon under pressure?

Before getting into the meat of why Amazon stands out as a fantastic long-term investment at today's prices, it's worth analyzing why the company and its stock have been struggling lately.

In addition to rising interest rates generally making the market more averse to growth stocks, high fuel costs and other inflationary pressures are leading to elevated operating expenses for Amazon's online retail business. These pressures are arriving at a particularly inopportune time.

In the face of soaring demand driven by pandemic-related conditions, Amazon made some huge investments in continuing to build out its warehousing and distribution imprint. The timing of these big investments proved to be less than ideal.

As pandemic-driven demand eased and people got back to shopping at brick-and-mortar locations, Amazon saw engagement for its e-commerce platform moderate. So in addition to facing tough bases of comparison to periods when the pandemic was pushing shopping to online channels, Amazon has been dealing with added costs related to its big infrastructure investments and the added challenge of inflationary pressures driving up expenses.

Making matters worse, the combination of economic slowdown and rising fuel costs has led to decelerating sales growth and margin contraction for the company's highly important Amazon Web Services (AWS) segment.

To sum it up, the company is facing a litany of headwinds right now. But there's little reason to think its long-term growth story has been derailed.

Amazon is built to last, even if times are tough

Amazon's near-term growth outlook is admittedly less than impressive, with management's midpoint guidance calling for sales of $144 billion and growth of just 4.8% in the fourth quarter. But here's where I think that it's important that investors keep Amazon's penchant for innovation and operational excellence in mind.

Even though AWS' operating income margin dropped to 26.3% in the third quarter, down from 30.3% in the prior-year period and 29% in Q2 2021, the segment is still posting strong margins and remains primed for long-term growth. AWS provides the backbone for much of the modern internet, and the segment should continue to see strong sales growth through the next decade and beyond even though there will undoubtedly be periods of economic downturn across the stretch.

Solid performance for AWS will help Amazon weather tough times and eventually get back to thriving amid a more favorable operating backdrop.

Don't overlook incredible potential in e-commerce

In terms of value waiting to be unlocked, I think investors should hone in on the fact that Amazon is an early leader in robotics. Right now, the market is focused on headwinds that are hurting performance for the e-commerce business and dragging down profitability for the company overall. But it seems the market has lost sight of the incredible scale and resource advantages that Amazon will be able to leverage in online retail.

Amazon remains in the early stages of benefiting from warehouse automation and the rise of autonomous delivery machines. E-commerce has always been a relatively low-margin business, and Amazon has historically been content to operate its online-retail business at a loss or slight profit in favor of expanding its sales base and building a massive operational imprint.

Advancements for robotics and self-driving vehicle technologies actually stand to make the company's e-commerce business significantly more profitable over time. As this happens, the payoffs and benefits of the company's incredible investments to build out the e-commerce business will start showing up meaningfully as earnings on the company's quarterly reports.

While 2022 was marked by a growth slowdown, the e-commerce market still looks poised for growth over the long term, and Amazon will continue to play a leading role pushing the industry forward. Research from Morgan Stanley estimates that the overall U.S. e-commerce market could grow from $3.3 trillion last year to $5.4 trillion in 2026, and there's plenty of room for continued growth from there.

Amazon's recent move to expand its Buy with Prime program is a reminder of just how powerful the company is in online retail, and the initiative will allow it to capture a cut of sales from any e-commerce operation partnered through the platform. E-commerce will continue to account for a greater portion of overall retail sales in geographic territories throughout the world, and the economy-of-scale advantages that Amazon has built will eventually start to become much more apparent from a profit-generating perspective.

This might be a once-in-a-decade buying opportunity

Amazon remains one of the best companies in the world, and investors have an opportunity to capitalize on elevated bearish sentiment surrounding the stock. With the company valued at roughly 1.7 times expected forward sales, Amazon trades at levels that set the stage for attractive long-term upside, and investors who take a buy-and-hold approach with the stock stand a very good chance of seeing strong returns.