2 Reasons to Avoid Amazon Stock as Tariffs Escalate

Core Viewpoint - The ongoing tariffs on Chinese goods pose significant challenges for Amazon, potentially impacting its retail and cloud businesses due to increased costs and reduced seller participation [1][2]. Group 1: Impact on Amazon's Retail Business - Amazon's third-party marketplace is heavily reliant on Chinese sellers, with over 50% of third-party sales coming from China-based sellers, a sharp increase from less than 20% in 2016 [4]. - The tariffs, currently at 145%, may force Chinese sellers to raise prices or exit the marketplace, leading to a reduction in product variety and potentially driving customers to competitors [5][6]. - A decline in third-party sellers could adversely affect Amazon's revenue from seller services, which generated $47.5 billion in Q4 2024, surpassing both AWS and Amazon Prime combined [3][6]. Group 2: Impact on AWS - AWS faces direct cost increases due to tariffs on server equipment and materials, but a more significant concern is a potential slowdown in IT spending among customers [8]. - Economic uncertainty may lead businesses to prioritize cost-cutting, which could negatively impact AWS revenue, especially as 21% of enterprise cloud infrastructure spending is reportedly wasted on underutilized resources [9]. - A recession could exacerbate these issues, leading to reduced spending from both consumers and businesses, further straining Amazon's marketplace and cloud services [10]. Group 3: Overall Risk Assessment - Given the current tariff situation and its implications, Amazon stock is viewed as a risky investment, with potential declines in revenue from both retail and cloud segments [11].