30% Downside Risk For Amazon Stock Amid The AI Bubble

Core Insights - Amazon has signed a $38 billion deal with OpenAI to run its systems on Amazon's cloud services, indicating a significant investment in AI infrastructure [2] - Amazon's stock has decreased by approximately 10.7% over the past week due to concerns about AWS growth, competition in the cloud sector, and worries about the "AI bubble" [2][5] - Despite recent volatility, Amazon's fundamentals remain strong, with a market capitalization of $2.4 trillion and revenue of $670 billion [2] Financial Performance - Amazon's current share price is around $222, with a P/E ratio of 34, indicating it trades at a premium [6] - The company has demonstrated resilience during market downturns, historically rebounding quickly after significant declines [10] Market Concerns - The AI bubble theory raises concerns about over-investment in AI, which could lead to slower returns from AWS and increased scrutiny on Amazon's debt levels [5][6] - If AI-driven expenditures do not yield quick results, Amazon may face valuation pressure, impacting its growth potential [6] Investment Strategy - A diversified investment strategy, such as the High Quality Portfolio, may provide better risk management compared to holding individual stocks like Amazon [3][8] - Historical performance shows that Amazon has rebounded from significant declines, suggesting potential for recovery if investors maintain faith in its core business and long-term growth prospects [10]