This "Minimal" Change Is a Big Deal for Amazon Stock

Key Points

• Amazon continues to ramp up warehouse automation using artificial intelligence (AI).

• Amazon's shares are still underperforming, but the long-term picture remains bright.

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Amazon's (NASDAQ: AMZN) quarterly earnings release on July 31 led to a cooldown in investor sentiment, a shift that has since persisted. Shares in this "Magnificent Seven" component have been more volatile since the report's release and are effectively flat over the past three months. Concerns about the future growth of Amazon's AWS cloud computing segment have been a key factor behind this.

Worries about the impact of tariffs on Amazon's legacy business have also played a role. AWS may be the tech giant's main profit center, but the North America segment, which includes the company's U.S. e-commerce business, still represents a significant portion of its overall business. During the quarter ending June 30, 2025, out of $167.7 billion in net sales, $100.1 billion, or just under 60%, came from this segment. North America also contributed $7.5 billion, or around 39%, of $19.2 billion in total operating income during the quarter.

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Hence, any sort of major headwind due to tariffs could severely impact future earnings. However, what if some of the latest changes in tariff policy from the Trump administration could be creating a tailwind for Amazon?

Image source: Getty Images.

That may be the case, with the recent elimination of one "tiny" exemption in U.S. tariff law. Coupled with another key e-commerce catalyst, this recent development may bode well for Amazon shares in the long term.

The recent change in customs law leaves Amazon relatively unscathed

For years, overseas e-commerce companies were able to take advantage of what became known as the "de minimis loophole," or U.S. tariff exemptions on imported shipments valued at under $800. So rather than ship their products in large batches to the U.S. to then sell to U.S. customers (and pay tariffs on the products as a result), these companies would ship each product individually. Thanks to this quirk in U.S. customs law, China-based platforms like PDD Holdings' Temu, as well as Shein, could penetrate the U.S. market and avoid tariffs -- all while minimizing their need to build a costly fulfillment network.

However, in May, this competitive advantage began to disappear. That's when President Donald Trump issued an executive order eliminating this exemption on shipments from China and Hong Kong. The impact on Shein and Temu was immediate, with both platforms reporting double-digit drops in daily active users and weekly sales. On Aug. 29, the exemption was eliminated for all U.S.-bound imports, marking an end to this loophole.

Shein and Temu aren't the only companies experiencing headwinds from this change in customs law. For U.S.-based platforms featuring a high volume of overseas direct ship listings, like eBay and Etsy, this is a headwind as well. For Amazon, however, the impact has been far less significant. Thanks to the company's large U.S.-based warehouse and fulfillment operations, the company and its third-party sellers have been able to adapt to the "new normal."

Moreover, beyond facing fewer challenges from this change, Amazon may also benefit from it. Third-party sellers are shifting to the company's fulfillment network, while Shein and Temu shift their overseas focus from the U.S. to Europe.

Short-term uncertainty outweighs new and existing e-commerce catalysts

The elimination of the de minimis loophole may bode well for Amazon's e-commerce business, but there is an even bigger potential catalyst in motion. So far this year, the company has ramped up efforts to integrate generative AI technology into its e-commerce operations.

It's difficult to tell whether these improvements have already started to improve margins. While Amazon's North American segment reported operating margins of 7.5% last quarter, a big improvement from the 5.6% reported for the prior year's quarter, remember that this segment also includes Amazon's faster-growing, high-margin advertising business. Then again, last quarter, while the number of individual orders increased by 12%, shipping costs for these orders increased by only 6%. This strongly suggests that the e-commerce giant's automation efforts are proving effective in reducing operating costs.

Over a multiyear time frame, profitability improvements could prove substantial. As analysts at Morgan Stanley pointed out back in February, Amazon's pivot toward next-generation fulfillment centers could result in $10 billion in annual cost savings by 2030. Unfortunately, while Amazon has these two long-term catalysts in its corner, the aforementioned near-term concerns remain top of mind.

Stay focused on the long-term picture

Amazon is scheduled to release its next quarterly results on Oct. 28. In the past earnings release, Amazon guided for total operating income of between $15.5 billion and $20.5 billion. As Amazon reported operating income of $17.4 billion in Q3 2024, there may be concern that Amazon will report declining operating income this quarter.

Right now, it's unclear whether these e-commerce tailwinds will enable Amazon to exceed Q3 2025 expectations. However, while "better than feared" e-commerce results could again be outweighed by negatives like lower-than-expected Amazon Web Services (AWS) growth, investors should stay focused on the long-term picture.

In the coming quarters, Amazon needs to assuage concerns that AWS (its cloud computing segment) is falling behind cloud competitors like Microsoft and Alphabet. Yet, even if these concerns persist, strength in areas like e-commerce and digital advertising may help to lift investor sentiment.

Trading for 28 times forward earnings, in line with its big tech peers, multiple expansion may prove difficult. Still, with analysts expecting Amazon to experience 15% earnings growth next year, merely rising in tandem with increased earnings would likely mean strong, steady gains for investors.

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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Etsy, Microsoft, and eBay. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.