Amazon stock: BofA lists key positives and risks for 2025

Investing.com — Amazon stock staged a strong performance in 2024, outpacing both the Nasdaq and the eCommerce sector with a 44% gain, compared to 25% for the Nasdaq. This surge was supported by an expansion in the price-to-sales ratio, which increased from 2.3x at the beginning of 2024 to 3.1x.

Analysts at Bank of America pointed to Amazon Web Services (AWS) and retail margin growth as two fundamental drivers of Amazon’s (NASDAQ:) success. They anticipate that AI-driven cloud growth will remain a significant opportunity within the sector in 2025.

Moreover, retail margin expansion is expected to continue propelling profit growth that surpasses that of Amazon’s peers. The analysts also noted that Amazon is positioned to handle the impact of the US dollar appreciation, which could benefit cloud margins.

Looking ahead to 2025, BofA identified several investment positives for Amazon stock. These include a strong AI-demand cycle for AWS, further retail margin efficiencies, a multi-year productivity cycle driven by robotics, an increase in Prime Video advertising revenue, cost savings from reductions in mid-level management, and a normalization of online retail that meets or exceeds expectations for the fourth quarter and holiday season.

At the same time, the investment bank also outlined potential risks. These are the impact of new tariffs on volumes and margins, investments in new areas like Project Kuiper that could stifle margin progress, and elevated expectations and possible margin pressure for AWS.

Rising competition from Walmart (NYSE:), and a relatively high valuation compared to Amazon’s historical price-to-sales and price-to-earnings ratios, were also highlighted. Moreover, with 79 Buy ratings, Amazon appears to be a consensus favorite stock, which may present its own set of challenges.

Regarding tariffs, media reports indicate that no new tariffs would be signed on President Trump’s first day in office. Instead, the administration plans to issue a broad trade memo to study potential overhauls with China, Mexico, and Canada.

In light of these positives and negatives, BofA slightly lowered its 2025 estimates for Amazon due to the recent US dollar appreciation, reducing the International Revenue forecast by approximately $7 billion. This adjustment is partially offset by slightly higher AWS margins.

For 2025, BofA estimates revenue/profit/GAAP EPS at $700 billion/$79.5 billion/$6.10, slightly down from the previous $707 billion/$79.9 billion/$6.13. Even with these adjustments, BofA still expects Amazon to show more stable year-over-year revenue growth in the first half of 2025 and better margin expansion relative to large-cap peers.

The firm continues to “see Amazon as a relatively strong play on AI,” analysts led by Justin Post said in a note.