With a price loss of almost 20% in the last 30 days Amazon‘S (AMZN 0.69%) The AI-powered rally is stalling, and there are concerns that a potential economic downturn could hurt the company’s consumer-focused business model. Let’s examine how these near-term challenges could affect the stock’s performance over the next three years and beyond.

Fears of recession are increasing

It’s impossible to predict the future, but investors should pay attention to macroeconomic factors that could influence their theses. For Amazon and other consumer goods companies, the biggest near-term threat may be a recession, which many economists believe is more likely after the unemployment rate in July (4.3%) was higher than expected.

When people lose their jobs, they have less money for online shopping, which leads to Discretionary items beyond the bare essentials. The good news, however, is that Amazon’s customer base still seems to be strong.

Sales increased by 10% in the second quarter Year after year to $148 billion, driven by the expansion of North American and international e-commerce.

Both segments are relatively mature, so investors shouldn’t expect explosive growth in the future. However, Amazon has focused on increasing profitability by reducing headcount and improving supply chain efficiencies, and those efforts are bearing fruit. Operating income rose 59% in North America to $5.1 billion, while the international segment jumped from a loss of around $900 million to a profit of around $300 million.

New growth and profitability drivers

While Amazon’s e-commerce business has become a stable cash cow, new segments will help drive the next leg of long-term growth. Following the launch of OpenAI’s ChatGPT in late 2022 Generative artificial intelligence (AI)-related demand has boosted the company’s cloud computing segment, Amazon Web Services (AWS).

AWS focuses on the infrastructure side of the AI ​​opportunity, offering customers pre-trained AI services such as Amazon Rekognition (which helps with image recognition and video analysis) or Amazon Macie, which is designed to use machine learning to protect customers’ sensitive data.

Amazon also has a basic large language model (LLM) called Bedrock, which allows customers to create custom conversational algorithms in the style of ChatGPT, but trained on their own data.

Image source: Getty Images.

Amazon’s tough approach to AI could protect the company from some of the competition on the consumer side. And the fact that these new AI offerings are integrated into the AWS platform could serve as an economic backbone by making AWS a one-stop shop for all of a customer’s cloud-related needs. Segment revenue increased 19% Year after year to $26.3 billion, while operating profit increased 72% to $9.3 billion.

What awaits us in the next few years?

While Amazon’s e-commerce and cloud computing businesses stronger The next twelve months could bring some challenges. Data analytics firm Statista gives the U.S. economy a 52 percent chance of falling into recession by May 2025.

Even if there is no downturn, the first cracks are appearing form in the AI ​​growth story, as consumer-focused startups cannot justify their infrastructure spending with revenue and profit. According to Keith Weiss, an analyst at Morgan Stanley, the industry is debating whether these companies will ever be able to monetize these algorithms, considering gigantic Capital amount expenditure required to train and operate them.

With a Price-earnings ratio (P/E) of 35, Amazon shares are trading at a modest premium to the NASDAQ100 Estimate of 28. That may be a bit high considering the near-term challenges. In the long term, Amazon is still a winner. However, investors may want to wait for a better price before taking a position in the stock.