There has been a slate of positive headlines out of Amazon (AMZN) in recent days, making clear the Club holding has a strong future ahead. The stock, however, came under pressure Tuesday following the announcement of a long-anticipated U.S. antitrust lawsuit against the company. The suit is a development we’re watching as investors, but not a major concern for the stock from a fundamental standpoint. The Federal Trade Commission alleged Tuesday that Amazon wields “monopoly power” to inflate prices, degrade quality for shoppers and unlawfully exclude rivals, undermining competition. FTC Chair Lina Khan, a long-time critic of Amazon, said Tuesday that the company “now takes one of every $2 that a seller makes.” Shares of Amazon, which have soared 51% this year, fell more than 3% in afternoon trading, to around $127 apiece. “Lina Khan had it out for Amazon for her whole career,” Jim Cramer said Tuesday. “This was an etched-in-stone view she had.” Still, Jim cautioned investors to hold off on buying more shares of Amazon until the dust settles. If the FTC were to force a a breakup of Amazon, it would be unlikely to harm shareholders, at least in the short term. While we prefer to see Amazon in its current form, there is a strong case to be made that the sum of its varied businesses could fetch a higher valuation in the market than as a standalone company. For its part, an Amazon spokesperson said Tuesday that the “lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court.” As a result, we’re focused on a raft of recent bullish developments. The ecommerce and technology giant has announced an ad-supported version of Prime Video, a multi-billion investment in an AI startup, and more hires in anticipation of a busy holiday-shopping season — developments that should all foster growth at Amazon’s core business units. Amazon stock has climbed 51% this year, as the company has doubled down on efficiency. At the same t Ads on Prime Video Amazon on Monday said it will introduce limited advertisements to run alongside its offerings on Prime Video starting in 2024, a move the company said was necessary to be able to continue investing in new content. The update to Prime Video, which is a part of the Amazon Prime membership subscription, costs $14.99 per month. Amazon will continue to offer an ad-free option for an additional $2.99 a month. The new Prime Video ads could create a monetization opportunity of $6.6 billion to $8 billion in incremental revenue, according to Wedbush. Analysts at the firm view the new offering as a “material operating margin driver in 2024-2025.” AI investment Separately Monday, Amazon said it will invest up to $4 billion in artificial-intelligence firm Anthropic, taking a minority-ownership position in the company. Anthropic rivals AI research laboratory OpenAI, which developed ChatGPT. As part of the deal, Anthropic said it plans to run the majority of its workloads on cloud unit Amazon Web Services. It will also use custom AWS-designed semiconductors to train the foundational models that underpin its AI applications, providing AWS customers access to future models. Wedbush sees Amazon’s latest AI announcement as a step toward making the company more competitive in a crowded AI field, allowing it to keep pace with rivals like Club names Microsoft (MSFT) and Alphabet (GOOGL). It shows a “newfound urgency in Amazon’s strategy to further integrate generative AI into its AWS suite of services,” Wedbush analysts wrote in a research note Monday. Anthropic is also backed by other tech stalwarts that include Alphabet, Club name Salesforce (CRM) and Zoom Communications (ZM). AMZN YTD mountain AMZN stock performance. Hiring Last week, Amazon announced plans to hire 250,000 new workers in fulfillment-center and transportation roles across hundreds of U.S. cities ahead of the holidays. That’s an increase of two-thirds over its seasonal hires in 2021. Jim last week said the move is a “colossal show of strength by Amazon” that suggests the company will see a busy holiday-shopping season. In a subsequent research note, Morgan Stanley called the new additions “a positive indicator of expected future demand that continues to reinforce the idea for future retail share gains for AMZN.” Bottom line Jim believes Amazon’s upcoming third quarter earnings, in late October, will be strong, foreshadowed by the blowout fiscal second quarter the company reported in early August. Now that the company’s profit engine, AWS, has stabilized, the business should be bolstered by its incorporation of AI into the cloud, helping to attract enterprise customers. The retail unit should also continue to see revenue growth, as U.S. consumers continue to turn to Amazon’s ecommerce platform for its reliability and ease. The bigger question is how retail margins will fare in the face of rising fuel costs, but there is optimism that Amazon’s efficiency improvements can offset such headwinds. And with over 200 million Amazon Prime members, Amazon remains one of the top spots for digital advertisers. Prime membership growth should continue to drive recurring revenue and be a catalyst for advertising. (Jim Cramer’s Charitable Trust is long AMZN, MSFT, CRM, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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There has been a slate of positive headlines out of Amazon (AMZN) in recent days, making clear the Club holding has a strong future ahead. The stock, however, came under pressure Tuesday following the announcement of a long-anticipated U.S. antitrust lawsuit against the company.
The suit is a development we’re watching as investors, but not a major concern for the stock from a fundamental standpoint.
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