Can Amazon.com Stock Withstand These Pressures?

Amazon.com (AMZN) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on 3 occasions in recent years, wiping out billions in market value, and erasing massive gains in a single correction. If history is any guide, AMZN stock isn’t immune to sudden, sharp declines.

Specifically, we see these risks:

1. Cash Flow Under Severe Pressure From AI Capex Over-spend
2. Intensifying E-commerce Competition Eroding Market Share and Margins
3. Mounting Legal and Regulatory Headwinds Post-FTC Settlement

Risk 1: Cash Flow Under Severe Pressure From AI Capex Over-spend

• Details: Massive reduction in free cash flow, limiting shareholder returns, Valuation de-rating as FCF margins contract sharply
• Segment Affected: AWS and North America
• Potential Timeline: Immediate, with impact intensifying through 2026
• Evidence: Free cash flow for the trailing twelve months decreased to $14.8 billion, driven by a $50.9 billion year-over-year increase in property and equipment purchases (Oct 2025), Management raised the capital expenditure projection for 2025 to $125 billion from $118 billion and expects it to increase again in 2026 (Oct 2025)

Risk 2: Intensifying E-commerce Competition Eroding Market Share and Margins

• Details: Slowing revenue growth in the North America segment, Margin compression from increased logistics and marketing spend to defend market share
• Segment Affected: North America
• Potential Timeline: Next 2-4 Quarters
• Evidence: Walmart’s e-commerce sales grew 27% year-over-year, with their marketplace revenue growing 37% (Nov 2025), Cross-border platforms like Temu and Shein are rapidly gaining market share in value-driven categories with aggressive discounting (Jan 2026)

Risk 3: Mounting Legal and Regulatory Headwinds Post-FTC Settlement

• Details: Ongoing legal expenses and potential for further fines, Forced changes to business practices that could impact growth and profitability
• Segment Affected: North America and Corporate
• Potential Timeline: Ongoing through 2026
• Evidence: A proposed class-action lawsuit filed by employees alleging mishandling of disability accommodations, with the company recently urging a judge to dismiss the case (Jan 2026), The FTC and 18 state attorneys general are pursuing a lawsuit alleging Amazon uses anticompetitive strategies to maintain its monopoly power, with the court denying a motion to dismiss (Sep 2024)

What Is The Worst That Could Happen?

Looking at Amazon’s risk during major market sell-offs gives a clearer picture. It plunged 94% in the Dot-Com crash, 65% in the Financial Crisis, and 56% during the inflation shock. Even the less severe dips, like 34% in 2018 and 23% in the Covid slump, show notable drawdowns.

But the Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read AMZN Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Is Risk Showing Up In Financials Yet?

• Revenue Growth: 10.9% LTM and 11.3% last 3-year average.
• Cash Generation: Nearly 2.0% free cash flow margin and 11.4% operating margin LTM.
• Valuation: Amazon.com stock trades at a P/E multiple of 34.8

*LTM: Last Twelve Months

If you want more details, read Buy or Sell AMZN Stock.

The Best Investors Think In Portfolios

Individual picks can be volatile but staying invested is what matters. A diversified portfolio helps you stay the course, capture upside and reduce downside

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.