AMZN
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NASDAQ
HOW TO INVEST IN AMAZON STOCK
Amazon has emerged as a dominant force in the tech industry, driven by its expansion in e-commerce and cloud computing services. With its shares traded on the NASDAQ stock exchange in New York, Amazon is at the heart of technology stock trading in North America.
But is it a wise investment? Are there hidden risks? What strategies should you consider when investing in this stock? This article will delve into these questions and more.
Last Update
19. marrask. 2024
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Stock Analysis: Amazon and the Technology Sector
Amazon focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. It has diversified its operations into various areas, becoming a leader in online retail, cloud services, and digital entertainment, positioning itself at the center of what many analysts call the "New Industrial Revolution" of information.
Amazon's Key Business Segments
Amazon's operations span several high-growth segments within the technology and retail industries:
Online Retail: Amazon is best known for its e-commerce platform, which is the largest in the world, offering a wide range of products from books to electronics and groceries.
Cloud Computing: Amazon Web Services (AWS) is a leading cloud platform offering a wide range of services, including computing, storage, databases, and machine learning.
Digital Streaming: Amazon Prime Video offers a vast library of movies, TV shows, and original content, competing with other streaming giants like Netflix and Disney+.
Artificial Intelligence (AI): Amazon integrates AI into many of its products and services, driving innovations in e-commerce, cloud services, and consumer devices like the Alexa smart assistant.
Logistics and Delivery: Amazon's extensive logistics network, including its fleet of delivery vehicles and drones, ensures rapid and reliable delivery services.
Amazon's Client List
Another perspective to analyze a stock as an investment is to consider who the company's clients are. This approach offers an idea of the 'league the company plays in' and provides information about potential increases or decreases in the stock's value.
When one of its major clients increases in value, the company's stock is likely to rise, and vice versa.
Amazon's major clients span a wide range of industries. Here is a brief list of the most notable clients:
Netflix: Uses Amazon Web Services (AWS) for its streaming platform.
Airbnb: Relies on AWS for cloud computing and storage services.
Slack: Utilizes AWS for its communication platform infrastructure.
Samsung: Integrates Amazon's Alexa in its smart home devices.
NASA: Uses AWS for data processing and storage for various projects.
Adobe: Leverages AWS for its cloud-based software solutions.
Spotify: Utilizes AWS for its music streaming services.
Siemens: Employs AWS for industrial cloud solutions.
General Electric (GE): Uses AWS for its digital transformation initiatives.
Unilever: Leverages AWS for global supply chain management.
Johnson & Johnson: Uses AWS for research and development data management.
Challenges and Risks
However, it is not so rosy. Despite its strong market position, Amazon faces several challenges and risks.
Regulatory Scrutiny: Amazon faces increasing regulatory scrutiny and potential antitrust actions, particularly in the U.S. and Europe.
Labor Issues: The company has faced criticism and legal challenges regarding labor practices and working conditions in its warehouses.
Intense Competition: Amazon operates in highly competitive markets, including e-commerce, cloud computing, and digital streaming, facing rivals like Walmart, Microsoft, and Netflix.
Market Saturation: As Amazon continues to grow, it may face challenges related to market saturation and slower growth rates in its core markets.
So, Is Amazon a Good Investment?
Based on the information presented earlier, Amazon has consolidated itself as a leader in its segments and has experienced significant growth due to high demand for its services and products.
Amazon is at the forefront of innovation and has shown more than solid financial results: It is not a startup that has been losing money for decades but has continuous growth prospects. The company has strategic alliances with tech giants. All this leads to the answer to the question of this section being yes.
However, there are potential risks. The e-commerce and cloud computing industries are highly competitive and can be volatile, affecting the stability of its revenues. Amazon also faces intense competition from companies like Microsoft and Google, which require constant innovation. Conducting thorough research and staying informed is key. Let's analyze these matters further.
Overview of the E-commerce and Cloud Computing Industries
When investing in a particular stock and considering its value to rise, you should also consider the industry trends in which it operates. In other words, if you are going to invest in a stock that has value today, but the industry's trend is downward, you should analyze how this will affect your portfolio if you are a medium or long-term investor.
The e-commerce and cloud computing industries are crucial to the global economy, providing essential services for various sectors. E-commerce continues to grow as more consumers shop online, and cloud computing is the backbone of modern digital infrastructure, from enterprise applications to consumer services. Key segments within these industries include online retail, cloud services, and digital streaming.
Industry Trends and Growth Factors
Several trends and growth factors are shaping the industries in which Amazon operates:
Expansion of E-commerce: The continuous shift towards online shopping is driving growth in Amazon's core business.
Growth of Cloud Computing: The increasing adoption of cloud services by businesses worldwide is boosting demand for AWS.
Rise of Digital Streaming: The growing popularity of streaming services is enhancing Amazon Prime Video's market position.
Integration of AI: Amazon's use of AI in its various services, from product recommendations to Alexa, is a significant growth driver.
Expansion of Logistics Network: Amazon's investments in its logistics and delivery infrastructure support its growth in e-commerce.
Global Market Penetration: Amazon's ongoing expansion into new international markets provides additional growth opportunities.
Alternative Assets to Amazon
While Amazon is a leader in the technology industry and, as mentioned earlier, one of the top stocks, there are other alternatives to invest in the e-commerce and cloud computing industries.
There are two main alternatives by type of asset: Stocks or ETFs. ETFs, or exchange-traded funds, are investment funds traded on stock exchanges, similar to individual stocks. They generally track the performance of a specific index, sector, commodity, or asset class, providing diversified exposure to investors.
Let's start with alternative stocks to consider.
Alternative Stocks to Amazon
Alibaba Group (BABA): Alibaba is a major player in the e-commerce space, particularly in Asia. It operates various online retail platforms and has a strong presence in cloud computing through Alibaba Cloud.
Microsoft Corporation (MSFT): Microsoft is a leader in cloud computing with its Azure platform, competing directly with AWS. It also has a significant presence in enterprise software and gaming.
Google (Alphabet Inc.) (GOOGL): Google Cloud is another major competitor in the cloud computing market, and Google's advertising business provides substantial revenue streams.
Shopify (SHOP): Shopify offers e-commerce solutions for businesses of all sizes, providing a platform for online stores and retail point-of-sale systems.
eBay Inc. (EBAY): eBay is a well-known online marketplace that connects buyers and sellers globally, offering a different model compared to Amazon's retail operations.
IBM (IBM): IBM provides cloud computing and AI solutions, competing with AWS and Azure in the enterprise cloud market.
Oracle Corporation (ORCL): Oracle offers cloud infrastructure and enterprise software, positioning itself as a competitor to AWS and Azure.
Adobe Inc. (ADBE): Adobe's Creative Cloud and Experience Cloud services are widely used in digital media and marketing, leveraging cloud technology.
Salesforce.com Inc. (CRM): Salesforce provides cloud-based customer relationship management (CRM) solutions and enterprise applications.
E-commerce and Cloud Computing-focused ETFs
In addition to individual stocks, investors can consider ETFs that offer exposure to a complete portfolio of stocks from companies within the e-commerce and cloud computing industries. Here are some of the main ones:
ProShares Online Retail ETF (ONLN): ONLN tracks the performance of the ProShares Online Retail Index.
First Trust Cloud Computing ETF (SKYY): SKYY tracks the performance of the ISE Cloud Computing Index.
Amplify Online Retail ETF (IBUY): IBUY tracks the performance of the EQM Online Retail Index.
Global X E-commerce ETF (EBIZ): EBIZ tracks the performance of the Solactive E-commerce Index.
These ETFs provide a convenient way to gain diversified exposure to the e-commerce and cloud computing industries. As mentioned, each index fund replicates the stocks of different indexes, meaning the stock portfolio also has differences. Nonetheless, these ETFs allow for a reduction in investment risk associated with individual stocks.
While there are other investment alternatives, we only mention those most directly related to the asset we are analyzing.
Tips for Finding a Good Broker to Invest in Amazon Stock
Choosing the right broker is crucial as it is your gateway to investing in the financial markets.
A good broker facilitates transactions and provides the tools, resources, and support needed to make informed investment decisions. Before this section, we leave you a ranking of brokers that will interest you.
Here are some tips to help you find the broker that best suits your needs when investing in a leading technology company:
Regulation and Security: Ensure the broker is registered with major financial regulatory bodies. Investing in a large-scale company requires maximum security. Verify if the broker is a member of investor protection schemes that safeguard your funds.
Commissions and Fees: Compare commissions for buying and selling stocks. Some brokers offer "commission-free trades," which can benefit frequent traders but consider additional fees, such as account maintenance and withdrawal fees.
Trading Platform and Tools: Evaluate the platform's usability, speed, and reliability. Investing in cutting-edge technology requires advanced technical analysis tools and real-time data to make informed decisions.
Range of Investment Options: Ensure the broker provides access to a wide range of stocks in various global markets, particularly if you plan to diversify your investments in the tech sector. If you are interested in the sector as a whole, check if they also offer products like tech ETFs, mutual funds, and options that include leading tech companies.
Customer Service and Support: Test the broker's customer service by contacting them with questions before opening an account. Investing in high-volatility stocks requires fast and efficient support, which is essential during critical market moments.
Account Types and Minimums: Review the account types offered, such as individual, retirement, and margin accounts. Check the minimum deposit requirements and ensure they align with your financial capabilities, especially if you plan a substantial investment in a tech company.
Order Execution Speed and Quality: Research the broker's order execution speed and quality. Tech stocks are known for their volatility, so fast and precise execution is crucial to maximize gains and minimize losses.
Amazon trades on the NASDAQ stock market in New York, one of the world's largest and most well-known stock exchanges.
Established in 1971, NASDAQ is renowned for its high-tech infrastructure and is home to many of the world's leading technology companies.
About the NASDAQ Stock Exchange
As we have repeatedly mentioned, the stock trades on the NASDAQ stock market in New York, one of the world's largest and most well-known stock exchanges.
Established in 1971, NASDAQ is renowned for its high-tech infrastructure and is home to many of the world's leading technology companies, such as Apple, Microsoft, Amazon, and Google.
With a high volume of trades, NASDAQ offers significant liquidity, making it easier for investors to buy and sell shares without causing major price fluctuations.
NASDAQ is synonymous with technology and innovation, hosting many of the world's leading tech companies and offering a platform for emerging growth companies.
Trading on NASDAQ
Stocks listed on NASDAQ are traded electronically through a network of computers rather than on a physical trading floor. This electronic system offers several advantages, including faster transaction times and greater transparency. Here's how stock trading works on NASDAQ:
Listing and Market Makers: Companies must meet stringent requirements to list their stocks on NASDAQ. Once listed, market makers—financial firms responsible for providing liquidity—facilitate trading by posting bids and asking stock prices.
Order Placement: Investors place buy or sell orders through their brokers. These orders are then sent to the NASDAQ network, which matches them with corresponding buy or sell orders.
Trade Execution: The trade is executed electronically when a match is found. The NASDAQ system ensures that trades are processed quickly, often in milliseconds, ensuring efficient price discovery and execution.
Regulation and Oversight: NASDAQ operates under the regulation of the US Securities and Exchange Commission (SEC) and adheres to strict rules to ensure fair trading practices and market integrity.
Trading Hours: NASDAQ operates during regular trading hours from 9:30 AM to 4:00 PM Eastern US Time, with pre-market and after-market trading sessions available for extended trading opportunities.
Specific Strategies for Investing in Stocks
We have already analyzed the stock, the fact that you need a broker as an intermediary, and the stock exchange where this stock is listed. The next question you should ask yourself is: How do I invest? What types of investment strategies exist?
The answer to this last question is: It depends. Consider your investment goals, time horizon (do you want to buy and sell within a day versus investing long-term), and the capital you have available.
Below, we briefly present some of the most common investment strategies, from Long Term to Short Term.
Buy and Hold Strategy
Horizon: Long Term
General Description: This strategy involves buying and holding stocks for an extended period, regardless of market volatility.
Objective: Benefit from the overall growth of the stock market and the compounding effect of reinvested dividends.
Tips: Select companies with solid fundamentals and a consistent performance history. Diversify across multiple sectors to spread risk. Be patient and avoid reacting to short-term market fluctuations.
Growth Investing
Horizon: Long Term
General Description: Invest in companies expected to grow at an above-average rate compared to other companies.
Objective: Achieve significant capital gains through stock price appreciation.
Tips: Focus on companies with strong earnings growth, innovative products, and a competitive advantage. Be prepared for higher volatility and the possibility of larger price swings. Conduct thorough research to identify emerging industries and market trends.
Index Investing
Horizon: Long Term
General Description: Invest in index funds or ETFs that track major stock market indices, such as the S&P 500, NASDAQ, or Dow Jones.
Objective: Achieve broad market exposure and benefit from the overall market growth with lower fees and risk.
Tips: Choose low-cost index funds or ETFs that offer diversification across multiple sectors. Use dollar-cost averaging to invest a fixed amount regularly, reducing the impact of market volatility. Rebalance your portfolio periodically to maintain the desired asset allocation.
Check out our ranking of the best apps for Index Trading.
Value Investing
Horizon: Medium Term
General Description: Based on fundamental analysis, identify undervalued stocks trading below their intrinsic value.
Objective: Benefit from the market's eventual recognition of the stock's true value.
Tips: Use metrics such as the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) analysis to assess value. Look for solid finances, good management, and a competitive advantage. Be patient, as it may take time for the market to recognize the stock's true value.
Momentum Investing
Horizon: Medium/Short Term
General Description: Invest in stocks with strong upward momentum, expecting the trend to continue.
Objective: Capture gains from stocks that are trending upwards.
Tips: Identify stocks with strong recent performance and high trading volumes. Use momentum indicators like moving averages and RSI to confirm trends. Be prepared to exit positions quickly if momentum reverses, using stop-loss orders to limit potential losses.
Contrarian Investing
Horizon: Medium/Short Term
General Description: Take positions against the prevailing market sentiment, buying when others are selling and vice versa.
Objective: Benefit from market overreactions and mispricing.
Tips: Look for fundamentally strong stocks that have been oversold due to negative news or market sentiment. Be patient and willing to hold positions until market sentiment reverses. Conduct a thorough fundamental analysis to ensure the stock's underlying value supports your investment thesis.
Swing Trading
Horizon: Short Term
General Description: A short-term strategy involves holding stocks for a few days to weeks and capitalizing on expected price movements.
Objective: Gain from short to medium-term price fluctuations using technical analysis.
Tips: Use technical indicators like moving averages, Relative Strength Index (RSI), and MACD to identify entry and exit points. Set stop-loss orders to manage risk and protect against significant losses. Stay updated on market news and events that may impact stock prices.
Day Trading
Horizon: Short Term
General Description: This strategy involves closing trades within the same day based on technical analysis and intraday market movements.
Objective: Profit from daily price movements.
Tips: You need a solid understanding of technical analysis and access to real-time trading tools. Use strategies such as scalping and breakout trading. Set stop-loss orders to manage risk and limit losses. Stay updated on news and events that may affect stock prices during the day.
Check out our ranking of the best apps for Day Trading.
News Trading
Horizon: Short Term
General Description: Strategy that involves taking positions based on the market's reaction to significant news and economic events.
Objective: Capitalize on volatility and rapid price movements from news and significant events.
Tips: Stay informed about relevant news and economic events. Use an economic calendar to anticipate key events. Set stop-loss orders to protect against adverse market movements. Be quick and decisive in executing your trades.
Key Findings
Investing in stocks requires a deep understanding of both the specific company and the industry in which it operates.
Evaluating available alternatives, such as other stocks within the same sector and different types of alternative assets, is essential for building a solid and diversified portfolio.
Choosing a good broker and adopting investment strategies that align with your objectives and time horizon are fundamental steps to maximize your returns and manage risk.
Choose the right strategy: A long-term strategy like buy and hold differs from a short-term strategy like day trading.
Finally, staying updated with market trends and being willing to adjust your strategy as needed will help you navigate the dynamic world of investing.