Amazon stock: Why the company is 'walking a tightrope'

Amazon (AMZN) is the last of the "magnificent seven" tech stocks that Yahoo Finance Tech Reporter Allie Garfinkle is profiling. Garfinkle discusses how the company is "trying to balance efficiency and growth moving forward," as well as the strength of Amazon's e-commerce business.

Video transcript

AKIKO FUJITA: We are rounding out our Magnificent Seven series. And what better way to end than with Amazon. The company has been making efforts to improve profitability. This year, it certainly paid off. Shares are up more than 70% year-to-date. After investing aggressively in the early part of the COVID pandemic to meet soaring demand, Amazon has worked to rein in some of those costs in 2023 through layoffs and efficiency measures. Let's bring in Allie Garfinkle on where the Street stands on the stock. Allie.

ALLIE GARFINKLE: Akiko, Amazon's really walking a tightrope here. They're really trying to balance efficiency and growth moving forward. They really soared during the pandemic. They were meeting this generational demand. And they expanded accordingly. And what's happened is they've had to cut back very, very publicly-- layoffs, cutting programs. You name it, Amazon's done it.

But on the bullish side there's a lot to be pretty enthusiastic about here, analysts are telling me. Number one is the e-commerce business, and its incredible resilience. Yes, they have to still keep working on improving those margins. But it's proven to be a really attractive offering for consumers. In this sort of stilted macroeconomic environment, data is really showing that, frankly, a lot of people are still buying their pasta, their paper towels on Amazon.

It also doesn't hurt that Amazon has been the best e-commerce stock performer. And they do have a pretty astonishing market share when it comes to e-commerce. Right now, Amazon has a grip on about 37% of the e-commerce marketplace. And this is pretty jarring. Walmart, their next closest competitor, comes in at 6.3%.

So there's a lot of optimism coming out of e-commerce. But they're also, as they've sort of been cutting back, there is starting to be a lot of optimism on where Amazon's valuation is at now. What do I mean by that? A lot of folks are saying that Amazon's stock is undervalued right now, some saying by about 10%.

For my part, I don't quite know what to think of this, Akiko. One of the things I find most interesting and infuriating about Amazon is this question of valuation, because there are so many parts of the business. And they're all so different that it's really difficult to find the sum of those parts.