Why Amazon Stock Plummeted Today
Key Points
The tech/retail giant is about to come under greater regulatory scrutiny in a huge market.
Meanwhile, an analyst downgraded his recommendation on its stock.
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A regulatory development across the Atlantic Ocean and an analyst's recommendation downgrade were deciding factors in the decline of Amazon (NASDAQ: AMZN) stock on Tuesday. On those less-than-encouraging pieces of news they sold out of the mighty retail and tech company to leave it with a more than 4% loss in share price on the day.
A regulatory upgrade, and an analyst downgrade
That day, the European Union (EU) designated 19 large tech companies -- including Amazon and peers like Microsoft and Alphabet's Google Cloud -- as "critical" technology partners for the bloc's financial industry.
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This brings them under the direct supervision of EU regulators. Those officials tend to be more aggressive about trying to limit the power of tech giants than their American counterparts.
Separately, before market open Rothschild Redburn's Alex Haissl pulled the lever on that Amazon downgrade. He now believes it's neutral, down a full peg from his previous buy, and has set the price target at $250 per share.
Incidentally, Haissl also made the same downgrade to his evaluation of Microsoft stock.
One of his concerns about such companies is their commitment to developing artificial intelligence (AI) capabilities. Of generative AI, Haissl was quoted by Bloomberg as saying that its "margins already assume longer depreciation schedules of five to six years, versus just three years in the early cloud era."
"On a like-for-like basis, this means capital intensity for gen-AI is significantly higher, while pricing power is notably weaker," he added.
Neither is a deal breaker
AI is unquestionably a drain on financial and other resources, so to a degree, Haissl's concern is warranted. Yet I don't think this will be much of a drag on Amazon stock, given the company's already strong tech foundation and its considerable resources.
And as a business accustomed to regulatory scrutiny at this point, the potentially enhanced EU oversight wouldn't deter me from Amazon either. To me, particularly given the company's enduring success with cloud business Amazon Web Services, it remains a buy candidate.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. 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.
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