I don’t recommend putting your entire nest egg in a single stock. Your life savings and retirement plans belong in a diversified portfolio. You can simulate that low-risk approach with a market-tracking exchange-traded fund, like the Vanguard S&P 500 ETF (NYSEMKT: VOO). It’s very hard to come up with just one stock that you could trust with your entire wealth forever.
That being said, Amazon (AMZN 0.18%) strikes me as one of the best cornerstones for that diversified long-term portfolio. The giant of e-commerce, artificial intelligence (AI), and cloud computing is built to last for decades. It operates in several robust industries. The company is also flexible enough to find and pursue entirely new business ideas as the market changes.
So how close is Amazon to that mythical single-stock investment strategy? Let’s take a look.
How Amazon became the everything store (and more)
Amazon has a long history of innovation. Founder Jeff Bezos started one of the first successful e-commerce stores. The simple bookstore expanded into music and videos, then jumped into consumer electronics and home goods. These days, you can buy anything from Chinese-made dish sponges to a new car at Amazon.com.
The online store is Amazon’s granite foundation. Combining the domestic and international retail operations, Amazon collected $530 billion of e-commerce revenues last year, generating $28.8 billion of operating income. Within these mottled segments, I’m looking at Amazon’s direct sales of in-house products like the Echo and Fire lines of consumer electronics, or the Amazon Basics range of household standards such as batteries and gloves. I also see items Amazon adds to its shipping centers through third-party distributors. And, of course, there’s the massive Amazon Marketplace, where anyone can offer products via the trusted Amazon shopping experience. It’s all wrapped in a world-class shipping service and several payment options.
Then there’s the Amazon Web Services (AWS) segment. What started as a pure (and early) cloud computing offering has expanded into related fields such as AI services, high-speed databases, and Amazon’s own semiconductor designs. Together, the various AWS items generated $108 billion of net sales in 2024. AWS also delivered most of Amazon’s operating profits, tallied at $39.8 billion.
Why Amazon isn’t quite a one-stop investor shop
So Amazon runs several successful businesses, where the sheer scale of the e-commerce wing allows the company to take chances and invest in its infrastructure. Meanwhile, the AWS arm generates enormous operating profits. It’s a diversified business model, especially when you consider how broad the online shopping portfolio is. But it still boils down to just two core operations, which isn’t enough to shield Amazon from swings in the global economy.
As an example, Amazon’s free cash flow soared in the pandemic lockdown era of 2020, but crashed hard in 2022. Amazon was vulnerable to higher inflation and lower consumer confidence. Even more diversified companies like Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) took a much smaller hit, leaning on necessary staples such as socks, insurance, and railroad transportation services when times were tough.
Amazon is diversified, but it really can’t compete with Berkshire or your favorite index fund on that front.
Image source: Getty Images.
How should you treat Amazon’s stock, then?
The company is not only successful and profitable, it has also shown a knack for adapting to ever-changing market realities. Amazon has been a helpful part of my own portfolio since 2017, and I only wish I had added it earlier. In my eyes, Amazon’s stock is a reasonable part of any long-term stock portfolio.
I just wouldn’t make it the only stock I ever bought. And I’m not convinced that right now would be the best time to make a very large Amazon investment, anyway. The economy looks wobbly and unpredictable, perhaps setting Amazon owners up for another painful price correction like the 2022 downturn.
If you’re ready to add Amazon to your stock portfolio today, I’d suggest a slower approach. Dollar-cost averaging can help you set up new positions despite risky market conditions. With automated purchases over time, you simply get more shares for your dollar when prices are low. Starting an emotion-free investing plan like that could be the best way to approach a new Amazon position in 2025.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
