TLDR:
- Amazon is working with vendors on a “case-by-case basis” to share tariff impacts following Trump’s 145% tariff on Chinese imports
- The company is selectively paying higher prices to vendors who agree to guaranteed profit margins
- Amazon’s stock is down nearly 30% from its highs, trading at one of its cheapest valuations in years with a P/E ratio of 31
- CEO Andy Jassy warned third-party sellers may pass tariff costs to customers despite efforts to keep prices low
- Amazon plans to invest $100 billion in AI data centers in 2025, continuing its pattern of heavy investment followed by strong returns
Amazon is making strategic moves to navigate the challenging tariff landscape created by the Trump administration’s recent trade policies. The e-commerce giant has begun working with select vendors to mitigate the impact of steep tariffs, especially the 145% levy on Chinese imports.
The company is attempting to balance customer experience with business realities in a rapidly changing trade environment. This comes as its stock experiences a significant pullback, creating what some analysts see as a buying opportunity.
President Trump announced a 10% “baseline” tariff on all countries importing goods to the U.S. on April 2. He later implemented a 90-day pause on reciprocal tariffs for most countries except China, which saw tariffs jump to 145%.
These policy changes prompted Amazon to initially cancel orders for products made in China and other Asian countries. This move frustrated many vendors who rely on the platform for their business.
Amazon’s Selective Vendor Support
According to a recent Business Insider report, Amazon has changed tactics. The company is now actively working with some vendors to prevent losing their business.
An internal document revealed that Amazon will pay higher prices to vendors for their products on a “case-by-case basis” to “share the tariff impact.” This strategy aims to help vendors offset higher costs from tariff-affected countries.
This offer isn’t available to all sellers. It’s primarily extended to vendors who agree to guaranteed profit margins.
The arrangement comes with risks for vendors. If their products don’t reach the fixed profit margin, vendors must pay Amazon extra. This becomes problematic if Amazon discounts a vendor’s products, making the vendor responsible for covering lost profits.
More than 60% of Amazon’s sales come from third-party sellers. The decision to pay more to vendors likely means shoppers will see higher prices on the platform.
CEO’s Warning on Price Increases
Amazon CEO Andy Jassy recently told CNBC that keeping prices low for customers remains the company’s top priority. “Whenever you have any threat of any kind of discontinuity, as a team, you have to think about what are the things you can do to help customers,” Jassy said.
He explained that Amazon is taking proactive measures, including strategic inventory purchases. “We’re doing everything we can to try and keep prices the way they’ve been for customers – as low as possible.”
However, Jassy candidly warned that third-party sellers will likely pass tariff costs to customers. “I’m guessing that sellers will pass that cost on; I think they’ll try, and I understand why,” he said. “Depending on which country you’re in, you don’t have 50% extra margin that you can play with.”
Consumer anxiety about price increases is already evident. A recent survey from market research company Numerator found that 83% of Americans are adjusting their shopping habits in anticipation of higher prices from Trump’s tariffs.
Investment Opportunity Amid Stock Decline
While Amazon navigates tariff challenges, its stock has fallen nearly 30% from recent highs. This decline has pushed the company’s valuation to historically low levels.
The stock currently trades at a trailing price-to-earnings (P/E) ratio of 31 and a forward P/E of 27. For context, Amazon’s average P/E over the past decade has been 137, with a three-year average of nearly 84.
Amazon continues its pattern of heavy investment in future growth. The company plans to invest $100 billion in AI data centers in 2025, following $83 billion in capital expenditures last year.
This investment strategy has historically paid off for Amazon. Goldman Sachs analysts noted in 2017 that during past large investment cycles, Amazon’s stock typically outperformed after the company increased its capital expenditure budget.
The company maintains leadership positions in two major businesses. Its e-commerce and logistics segments continue to grow at low double-digit rates while showing improved operating leverage, with combined North American and International segment operating income increasing 74% last quarter.
Meanwhile, Amazon Web Services (AWS) cloud computing remains the company’s most profitable business and fastest-growing segment, with 19% revenue growth last quarter. AWS is benefiting from customers running AI workloads on its platform and growth in AI services like Bedrock and SageMaker.
The company has also developed custom AI chips through its Annapurna Labs subsidiary, potentially giving Amazon a cost advantage in the competitive cloud computing market.
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