Why Amazon.com Stock May Drop Soon
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:
- Accelerating Cash Burn on Speculative AI Infrastructure
- Antitrust Dragnet Closing In
- Systemic Labor Compliance Failure
Risk 1: Accelerating Cash Burn on Speculative AI Infrastructure
- Details: Negative free cash flow in coming quarters, Valuation multiple compression due to deteriorating cash conversion
- Segment Affected: AWS
- Potential Timeline: Immediate, intensifying through 2026
- Evidence: Full-year 2025 cash capex guided to ~$125 billion, with a stated increase expected in 2026 (Q3 2025 Earnings Call), Trailing twelve-month free cash flow was $14.8 billion as of Q3 2025 (Q3 2025 Earnings Call)
Risk 2: Antitrust Dragnet Closing In
- Details: Forced divestiture or significant alteration of the third-party marketplace model, Material increase in ongoing legal expenses and potential for substantial fines
- Segment Affected: North America
- Potential Timeline: Ongoing through October 2026
- Evidence: FTC antitrust lawsuit trial date set for October 2026 (Jan 2026 News Reports), A federal judge allowed the core of the FTC’s lawsuit to proceed, dismissing only some state-level claims (Jan 2026 News Reports)
Risk 3: Systemic Labor Compliance Failure
- Details: Significant legal costs from class-action lawsuits, Increased operational overhead to overhaul HR and accommodation systems
- Segment Affected: Corporate
- Potential Timeline: Next 12-18 months
- Evidence: Proposed class-action lawsuit filed by employees in November 2025 alleging mishandling of disability accommodations (Jan 2026 News Reports), Amazon’s recent legal maneuver to have the case dismissed indicates the company is actively fighting a potentially costly legal battle (Jan 2026 News Reports)
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 36.0
| AMZN | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Broadline Retail | – |
| PE Ratio | 36.0 | 24.4 |
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| LTM* Revenue Growth | 10.9% | 6.4% |
| 3Y Average Annual Revenue Growth | 11.3% | 5.7% |
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| LTM* Operating Margin | 11.4% | 18.8% |
| 3Y Average Operating Margin | 7.9% | 18.4% |
| LTM* Free Cash Flow Margin | 2.0% | 13.5% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell AMZN Stock.
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