Key Takeaways
- Amazon is set to face higher costs under the Trump administration’s new tariffs, which could tighten the online retail giant’s profit margins, Bank of America analysts wrote Wednesday.
- The analysts see Amazon gaining market share in the retail sector as consumers are forced to prioritize value.
- Amazon’s “rapidly growing essentials business” could also benefit as discretionary spending falls, the analysts wrote.
Amazon (AMZN) is likely to face pressure on its profit margins as it feels the effect of the President Donald Trump’s tariffs, but the online retail giant also has advantages, Bank of America analysts wrote Wednesday.
The analysts cut their price target to $225 from $257 to reflect headwinds to profit margins and sales volumes, but expects Amazon to record retail share gains as consumers seek lower prices. Trump on Wednesday said he would institute a 90-day pause for all the tariffs except those placed on Chinese products, which have been lifted to 125%.
The analysts said Amazon’s first-party products and third-party sellers could see lower sales volumes and smaller margins as tariffs increase their costs. Higher prices should help offset some of the cost burden, but could also lead to consumers shifting more of their spending to essentials and away from discretionary items.
Growing Essentials Business Could Benefit Amazon
“We would expect retail share gains for Amazon given a low-price 1P (first party) strategy, and robust 3P (third party) seller selection as consumers shop for lower prices,” the analysts wrote. “Amazon should also benefit from its rapidly growing essentials business and leverage in Cost to Serve.”
Amazon Web Services (AWS) shouldn’t face much impact from tariffs, the analysts wrote, but “a broader economic slowdown is a risk to IT spend.”
Other analysts have pointed out that retailers with a strong value perception like Walmart (WMT) and Costco (COST) could benefit from the uncertainty created by the tariffs.
Amazon shares were up in more than 9% in recent trading Wednesday, as markets rallied after Trump’s announcement.
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