When it comes to investing in tech shares, it’s impossible not to think of Amazon (NASDAQ: AMZN). After all, it consistently ranks in the top 5 of any ‘Global Brand’ list you care to look at. Usually competing with Apple for the number one spot.
But tech shares have had a well-documented rough ride for a while. And with its recent earnings report now missing analyst targets, the Amazon share price is down over 25% since the start of the year.
Do I smell an opportunity to buy?
I’ve been caught by catching the proverbial falling knife once before. Buying what seemed a bargain ended up being an expensive lesson.
So, before I get too excited about the drop in Amazon’s share price, what’s behind it?
First up – that earnings reports. Ok, it missed analyst expectations. But were they fair?
Amazon, along with others, benefitted hugely from the pandemic-driven change in behaviours. So, it seems to me, that expecting it to continue to over-deliver as the world slowly returns to some sort of normality is…..perhaps a little optimistic?
A more realistic view would be to compare like-for-like, i.e. to the same quarter pre-pandemic. And on this basis – Amazon has continued to perform.
Recent media focus has very much been on what’s gone wrong with Amazon. It’s more dramatic & ‘newsworthy’, I guess.
But there’s been far less focus on what’s gone right. Like, say, a huge increase in AWS (Amazon Web Services). Here, first-quarter operating income increased by 57% year-on-year. Hardly panic stations?
There may be trouble ahead…
So, the doom and gloom may be overdone. But I don’t want to ignore legitimate concerns.
E.g., for now, the bulk of Amazon’s income remains via its online sales. And I can see that major global competitors like Alibaba Group and Mercadolibre Inc. are going to potentially limit Amazon’s ability to expand into markets outside the US and Europe.
And there are those well-documented headwinds of cost of living, inflation, the ongoing war, and rising interest rates that are all going to present challenges to growth.
Tech stock of the future?
What I really like about Amazon is its vertical-integrated strategy approach.
Its diversified business model sees it investing all along its value chain. From renewable energy, logistics, cloud computing, the list goes on.
My personal favourite must be its latest exploit, with plans to launch 3,000 satellites over the next five years to build up its space-based internet business.
It may sound far-fetched, but this area of business is estimated to be one of the growth areas of the future. In fact, Morgan Stanley has put out estimates for the overall space industry forecast to be up to $1 trillion by 2040.
And whilst these predictions can be notoriously wide of the mark, it is undoubtedly a growth sector of the future. No wonder they want to compete with Elon Musk’s SpaceX here.
So, is now the right time to buy Amazon?
In my view owning a piece of Amazon is like owning several companies in one – it’s no longer a pure e-commerce play. And that’s something I like a lot.
As a long-term Foolish investor, I want to buy and hold shares of companies I think will play a major part in the future.
So perhaps, with share prices now back where they were two years ago, it might finally be the right time for me to add them to my growth portfolio.