A $2 trillion company with a great future
This American giant is down with the rest of the market, but results have been good and analyst Rodney Hobson believes it could be a chance to buy in.
19th November 2025 09:04
by Rodney Hobson from interactive investor
Shares in leading online retailer and technology company Amazon.com Inc (NASDAQ:AMZN) have fallen back sharply but not disastrously since its results were so well received at the end of October. This looks to have opened up a buying opportunity for those who feel that the tech boom is far from over and are belatedly looking for a chance to buy in before it is too late.
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The actual results were expertly analysed by Keith Bowman at the time and, as he rightly reported, the consensus among analysts was that the shares were a buy at that stage. Those who followed that consensus are now out of pocket. So were the experts wrong, as admittedly can happen?
Amazon jumped from $223 to a new high at $244 on the day the figures came out but have slipped back, bit by bit, to below $225 again and are still losing ground.
At the current share price Amazon has a price/earnings (PE) ratio of 33, which would not be excessive for an American technology company, but it does reflect the fact that Amazon is still seen as predominantly an online retailer with technology a growing sideline.
Let us remember, though, that Amazon has, from the outset, been a growth company that has built quickly without overstretching itself, moving logically into related businesses using its existing expertise. From the niche it had carved out for itself in online bookselling it transformed into running its own virtually unchallenged Kindle ebook business and then into web services and cloud computing.
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Third-quarter sales at $180 billion were up 13% on the same quarter in 2024. More importantly, they continued a well-established trend in which there is a fallback in the quieter first quarter, then a steady gain up to record-breaking fourth quarters, reflecting the online retailing Christmas run-up. Each quarter comes in better than its equivalent in the previous year.
Source: interactive investor. Past performance is not a guide to future performance.
Cloud computing including artificial intelligence is now, not surprisingly, the really exciting part of the business and Amazon is more than holding its own. Revenue from this arm grew at its fastest pace for three years, up 20% over the previous quarter and operating profit rose 10% to $11.4 billion, roughly two-thirds of the total for the whole group.
Cloud computing is high margin and fast growing. It is also expensive. Capital expenditure is likely to hit $125 billion this year, way higher than the $100 billion indicated at the start of 2025 and indicating a significant step-up before year end from the $90 billion already sent. Most companies would not be able to afford this level of investment, but Amazon can take it in its stride. There are reports that it hopes to raise $12 billion through selling corporate bonds, a move that should be soaked up easily by eager investors.
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Investment bank Morgan Stanley estimates that the 11 largest tech companies are on track to splash out $469 billion in capital expenditure this year, so Amazon will account for more than a quarter of the total in a sector where you really do have to keep up with, or preferably stay ahead of, your rivals.
Hobson’s choice: This is emphatically not a stock for income seekers, as there is no dividend and unlikely to be one while so much cash needs to be ploughed back into keeping ahead of rivals. However, this is a company with a great future that will not be too badly affected if the tech bubble bursts as the shares are priced more reasonably than those of rivals heavily dependent on cloud computing and AI. If you are in, hold on; if seeking to get in, look to buy below $230. The floor should hold at $220.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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