Even a perennial outperformer like Amazon.com (NASDAQ: AMZN) takes its lumps once in a while. After finishing higher in each of the last seven years, the company is on pace to lose roughly half its market value in 2022. 

Common culprits like supply chain disruption and higher labor costs have been responsible for much of the plunge. A slowdown in online shopping and recessionary worries are giving investors more reason to delete Amazon stock from their carts. 

The e-commerce giant isn’t the only one getting swiped by the bear. A weakened macro outlook has also crushed consumer discretionary leaders such as Tesla and Home Depot. 

How far into 2023 the ‘risk-off’ mode hangs around remains to be seen. But whenever growth stocks do return to favor, Amazon has several things going for it that could make it rebound faster than others.

#1 - Earnings Have Already Bottomed

As with package arrivals, Amazon tends to underpromise and over-deliver when it comes to financial results. Third quarter revenue and profits well-exceeded Street expectations (as they often do). However, with the market moody about other big tech reports, a soft Q4 outlook caused a selloff.

Yes, it would’ve been nice to get a more confident view ahead of the holiday shopping period, but it beats the alternative. Pumping up a big quarter only to fall short would’ve shaken investors, even more, come February. Instead, management offered realistic expectations based on the macro environment. Conservatism is always better than cheerleading. 

More importantly, we’ve likely seen the worst of the company’s ‘un-Amazon’ performances. The second quarter’s $0.10 EPS result was the lowest in five years. This was followed by last quarter’s $0.28 EPS that marked a strong sequential improvement…but got overshadowed by the Q4 outlook. 

A profitability setback is forecasted for the current quarter, but things start to look better from there. Wall Street is projecting EPS to grow sequentially in the first three quarters of 2023 and reach $0.45 by the third quarter.  This would be the best bottom line in more than two years. If things play out as expected, an upward earnings trajectory would go a long way in restoring investor confidence.

#2 - The Cloud Business Remains Underappreciated

It's widely known that Amazon is the top online retailer in the U.S. and one of the top websites globally. What’s less publicized is the fact that Amazon Web Services (AWS) is the world’s top Infrastructure-as-a-Service (IaaS) provider. Prime memberships and advertising get all the attention, but it is AWS that is Amazon’s profit machine.

While the retail operation posted a $2.9 billion Q3 loss, AWS booked a $5.4 billion operating profit. AWS still accounts for less than one-fifth of overall revenue, but it is the faster-growing, higher-margin side of the business. 

AWS should be considered Amazon's crown jewel for two reasons: 1) the long-term growth opportunity is large and 2) the subscription-based revenue it generates has good visibility as compared to the more volatile, economically-sensitive e-commerce business.

Although consumers may be visiting Amazon.com less often these days, business customers continue to flock to AWS to drive their digital transformations. Even with uncertainty rising, the segment’s 27% top-line growth confirms how important it is as a driver of future economic growth. 

Amazon secured new AWS commitments and migrations during Q3 across both industries and geographies. Automaker BMW Group increased its engagement to gain insight from its tech-forward vehicle lineup. Frozen food company Schwan's Home Delivery is using AWS infrastructure to optimize delivery times and personalize its customer experience.

Soon AWS will be entering brand new markets like Thailand and expanding in the Middle East. The division’s pursuit of growth in a fragile global economy speaks volumes. It is reminiscent of early e-commerce growth and the best reason to be excited about Amazon long-term.

#3 - Amazon Stock is Actually Cheap

At less than $100, Amazon is the cheapest it has been in a long time — and not just because of this summer’s 20-for-1 split. The stock trades at 62x forward earnings, which is inexpensive by Amazon’s premium valuation standards. Over the last five years, the average P/E is 94x. As profits improve, multiple expansions back toward historic levels could unfold quickly.

Amazon hasn’t had two consecutive down years since 2000. This doesn’t mean history can’t repeat itself, it’s just unlikely…even if recession fears come true. Why?

This is a very different company than it was two decades ago. Not only has Amazon become a household name synonymous with online shopping (similar to how Google is to search), but it has a rapidly growing cloud business that is driving the digital revolution — and can offset e-commerce weakness. 

Eventually, the Fed will slow its rate hike roll and investors will take this to mean healthier economic conditions ahead. And since the stock market is a leading economic indicator, this could be choreographed long before GDP and labor market data gets released. 

As signs of increased consumer and enterprise spending emerge, trader-favorite Amazon will resume its ascent to the clouds.