There are many exchange-traded funds (ETFs) to choose from on the ASX, both active and passive.

Although the funds themselves are traded on the ASX, many of these contain overseas stocks.

The situation then gets complicated because the buying and selling price for these shares becomes dependent on the exchange rate of the Australian dollar.

Some ETF providers have provided a solution around this by providing currency-hedged funds.

Hedged funds will use financial instruments to smooth out the effects of any exchange rate fluctuations over time.

So when should you buy into a currency-hedged ETF, and when should you go for the unhedged ETF?

Shaw and Partners portfolio manager James Gerrish gave his thoughts recently on this dilemma:

The Australian dollar is a risk currency

Gerrish took the example of Betashares Nasdaq 100 ETF (ASX: NDQ) and BetaShares NASDAQ 100 ETF-Currency Hedged (ASX: HNDQ).

"These are ASX listed ETFs yet they are holding US assets such as Microsoft Corp (NASDAQ: MSFT), Apple Inc (NASDAQ: AAPL) and Amazon.com Inc (NASDAQ: AMZN)," he said on a Market Matters Q&A.

"NDQ is not hedged whereas the HNDQ ETF is currency hedged."

He explained that if the NASDAQ-100 (NASDAQ: NDX) rises by 10%, HNDQ is designed to do the same.

"NDQ is also exposed to the vagaries of the Australian dollar," said Gerrish.

"If the Aussie falls by 10% your gains on the underlying stock could be wiped away and, of course, vice versa."

The conventional wisdom is to buy the hedged ETF when the Australian dollar is low, and buy the unhedged version when the Aussie is high against other currencies.

However, Gerrish's insight is that the difference is not as significant as one might think.

"Unhedged exposures generally have a smoothing effect on returns for Australian investors given the Australian dollar is a risk currency," he said.

"When markets fall, the Australian dollar generally falls as well, cushioning the decline."

Over the past year, NDQ has fallen 11.5% while the currency-hedged HNDQ has lost 17%.

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So it goes without saying that this is a person we should all be taking lessons from on how to invest.

I certainly am. And I'll be using Buffett's wisdom to try and buy ASX shares at deep discounts.

One of Buffett's fundamental principles of investing is that price and value aren't the same things. Just because the share market is telling us that Commonwealth Bank of Australia (ASX: CBA) shares are worth roughly $110 today, doesn't necessarily mean they have a value of $110.

Let's take another example that investors might be a little more envious over. Today (at the time of writing), one share of the US e-commerce giant Amazon.com Inc (NASDAQ: AMZN) is worth just over US$100. But back in February 2015, those same shares were worth just US$19. So are both prices 'fair value'?

I would argue that the pricing Amazon was commanding back then was extremely undervaluing the business. That's why investors have enjoyed more than a 400% return in just eight years. That's a compounded annual return of 23% per annum.

Back in 2008, Buffett said the following in his annual letter to the shareholders of Berkshire Hathaway. Keep in mind that this was written in the midst of the global financial crisis:

…the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market.

This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.

Now, recessions and a stock market crash like we saw in 2008 don't come along very often. But that doesn't mean we can't still employ this timeless wisdom today.

How to buy ASX shares like Buffett

Although the ASX share market has had a very positive start to the year, I still think there are many ASX 200 shares out there that are being priced well below what they are truly worth.

Take the JB Hi-Fi Ltd (ASX: JBH) share price. It's currently trading on a price-to-earnings (P/E) ratio of just 10. That gives the company a fully franked dividend yield of over 6.7%.

Contrast that with CBA shares. CBA is presently boasting a P/E ratio of 20.45, with a dividend yield of just under 3.5%.

Compared to CBA and the broader market, JB Hi-Fi looks like "merchandise that has been marked down" to me. Buffett has shown this method of value investing can reward investors handsomely. That's why I'm still looking for ASX shares trading at deep discounts right now.

The post I'm listening to Warren Buffett and buying ASX shares at deep discounts appeared first on The Motley Fool Australia.

Regular readers of The Motley Fool would not need reminding that technology shares took a brutal beating in 2022.

But with the S&P/ASX All Technology Index (ASX: XTX) up 15.5% already this year, one expert has declared the sector is back with a vengeance.

DeVere Group chief executive Nigel Green said that financial updates from US tech giants this week would commence "The Great Rotation back into growth stocks".

"As market conditions shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging environment," he said. 

"But what is happening now, we believe, is the beginning of a rebound."

Mixed results for tech giants

Green did admit the short-term results for big tech were mixed.

"Facebook's parent company Meta Platforms Inc (NASDAQ: META) has exceeded estimates for revenue in its fourth-quarter earnings report, with the stock soaring in extended trading on the results," he said.

"While Amazon.com Inc (NASDAQ: AMZN)'s earnings are expected at $0.15 per share, which would be an 89% decrease from the same quarter in 2021."

Green predicted that Apple Inc (NASDAQ: AAPL) would see declining revenue for the first time since early 2019.

"Alphabet Inc (NASDAQ: GOOGL), the parent company of Google, is expected to report a third consecutive quarter of declining earnings."

But this won't stop long-term investors piling back into the tech sector, according to Green.

He cited two reasons why The Great Rotation is on in earnest.

"First, valuations of tech and other growth stocks are currently low having been hit by the previous rotation into value stocks," said Green.

"Investors are now eyeing these super attractive entry points to top-up their portfolios as the trend is reversing."

Secondly, investors are looking forward to how macroeconomic factors might change.

"Inflation has seemingly peaked and interest rates are set to stabilise, which takes away a major obstacle for tech stocks."

Bet on still-cheap tech for strong returns 

Green thus declared that "tech stocks are back" and urged punters to take advantage.

"Rotation into the right growth stocks will provide strong returns."

He warned, though, that this is not a time for investors to "buy everything".

"There will be big winners and losers. They must concentrate on high quality, profitable companies which can consistently maintain or steadily grow margin[s]."

And despite lukewarm results, the tech giants shouldn't be written off.

"[They] still have piles of cash, in some cases hundreds of billions of dollars, and remain enormously profitable," said Green.

"In addition, these companies maintain considerable user bases, world-class research and development, plus some of the smartest talent on the planet."

The post 'The Great Rotation' has begun: Expert declares tech shares will provide 'strong returns' in 2023 appeared first on The Motley Fool Australia.

Any ASX dividend investor worth their salt knows all about the ex-dividend date – the date that new investors are cut off from receiving an upcoming dividend payment.

Ex-dividend dates are usually notable events. For one, they are the dividing line between who gets cash and who doesn't. But because new investors aren't eligible for a dividend after the ex-dividend date passes, the value of said dividend leaves the company's share price on the ex-dividend date. This usually results in a large share price fall.

Well, it's not just ASX shares that can trade ex-dividend. Exchange-traded funds (ETFs) can pay dividends too. And as such, ETFs have ex-dividend dates as well.

Of course, dividends from an ETF are technically called distributions. This reflects the fact that an ETF is a trust, and not a company. As such, an ETF's ex-dividend date is actually called its 'ex-distribution' date.

As we speak, two ASX ETFs are quickly approaching their next ex-distribution date.

Let's discuss them.

2 ASX ETFs going ex-dividend next week

The first is the Vanguard FTSE All-World ex-US ETF (ASX: VEU). This ETF is a rather massive one in scope from provider Vanguard. It invests in a basket of roughly 3,500 shares hailing from countries all around the world, with the exception of the United States.

You'll find ASX shares here, as well as those from Canada, Taiwan, Japan, China, Europe, India, and the United Kingdom.

This ETF pays out dividend distributions every quarter. Its latest distribution payment is due on 20 January 2023. However, only investors who own this ETF's units on or before the ex-distribution date of 20 December (next Tuesday) will be eligible for payment.

Vanguard hasn't yet disclosed the exact amount investors can expect to see for this distribution. The final amount in Australian dollar terms will only be revealed on 16 January.

Next up we have the Vanguard US Total Market Shares Index ETF (ASX: VTS). Another ETF from Vanguard, this fund covers not just the popular S&P 500 Index (SP: .INX), but a total of 4,030 shares on the US markets. This gives investors massive diversification across large and small-cap US shares.

Although the larger names like Apple and Amazon are still dominant in this ETF, name any US public company you can think of, and it's probably in this fund too.

The Vanguard US Total Market Shares Index ETF also pays out quarterly distributions. Again, Vanguard hasn't yet disclosed exactly how much investors can expect to be paid out yet. However, we do know that the next distribution date for this ETF will be on 25 January 2023.

Investors have until the ex-distribution date on 23 December to buy units of this ETF if they wish to receive this payment. The final amount in Aussie dollars will then be disclosed on 19 January next year.

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Something strange is happening with the iShares S&P 500 ETF (ASX: IVV) this week. Back on Monday, units of this exchange-traded fund (ETF) were trading for almost $600 each. But today, this ETF is going for just $39.07 per unit. It also seems to have a new ticker code.

So has this popular ASX ETF really lost almost 95% of its value this week?

The iShares S&P 500 ETF is one of the most widely-held ETFs on the ASX. It's actually the ASX's most popular internationally-based fund. This ETF tracks the S&P 500 Index (SP: .INX), which is the most widely tracked index in the world.

It represents the 500 largest companies on the US markets by market capitalisation. That includes everything from Apple, Microsoft, and Amazon to Exxon Mobil, Coca-Cola, and McDonald's.

So no, this ETF hasn't collapsed by 95% this week. If the US S&P 500 Index was down 95% in one week, we'd certainly all know about it.

Rather, this ETF has just undergone a stock split.

A stock split for the S&P 500 ETF?

A stock split occurs when a company or ETF decides to increase its share (or, in this case, unit) count. It issues new shares (or units) to existing investors, at the same time diluting the value of the existing shares out there.

This has the effect of lowering the share (or unit) price of the company or ETF, but makes up for this by giving away new shares (or units).

This can be done for a number of reasons. But most do so to boost liquidity and to make it easier for investors to buy and sell shares or units.

At the start of this week, one single unit of the iShares S&P 500 ETF would set an investor back almost $600. That makes it a rather unwieldy investment to have to deal with.

This ETF's provider must have thought so too, because back on 23 November, BlackRock announced that the iShares S&P 500 ETF would be undergoing a 15-to-1 stock split.

That means that for every one unit of this ETF, investors now own 15. Concurrently, the unit price of this ETF has just been reduced by a factor of 15.

So if an ASX investor used to own 10 iShares S&P 500 units, worth $5,860, today, they own 150 units, each worth $39.07. Same value, different path to getting there.

So no investor has been left better, or worse off, from this split. It's just a cosmetic change for all intents and purposes.

Is it IVV or IVVDB?

But what's with the new ticker code? Yes, the iShares S&P 500 ETF used to trade under the code 'IVV'. But today, the ETF has seemingly switched to 'IVVDB'. Well, this is a temporary situation.

As we covered last week, part of the stock split process involves the ETF trading under a 'deferred settlement' basis. So today, the 'IVVDB' units represent the deferred settlement units.

This will only be in place until 13 December. That's when the deferred settlement period will have concluded and the ETF reverts to its old 'IVV' code.

The IVVDB units will seamlessly be converted into IVV units when this happens. So if you're desperate to buy the newly-split ETF today, don't let the new code hold you back.

The post Is the iShares S&P 500 ETF (IVV) really down 95% today? appeared first on The Motley Fool Australia.

ASX shares are having a top day of gains so far this Thursday. At present, the S&P/ASX 200 Index (ASX: XJO) has risen by a healthy 0.85% all the way up to just under 7,350 points. But those gains look rather small in comparison to what's happening with the BetaShares NASDAQ 100 ETF (ASX: NDQ).

This index-tracking exchange-traded fund (ETF) is rocketing in value today. BetaShares NASDAQ 100 ETF units are currently enjoying a 2.78% surge in value, lifting the fund up to $27.38 per unit.

So what's behind these pleasing rises this Thursday?

Why is the BetaShares NASDAQ 100 ETF surging in value?

Well, the BetaShares NASDAQ ETF is an index fund that tracks the NASDAQ-100 (NASDAQ: NDX) over in the United States. The NASDAQ 100 is an index that tracks the 100 largest shares on the NASDAQ stock exchange, excluding certain financial companies.

The NASDAQ is well known for being the home of most of the top tech shares on the US markets. Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Tesla Inc (NASDAQ: TSLA) all call the NASDAQ home. As you can tell by their ticker codes.

So as goes the performance of the NASDAQ 100 Index, so goes the BetaShares NASDAQ 100 ETF.

And lo and behold, the NASDAQ 100 had a stellar night last night in US trading. The iIndex finished the session up a rather extraordinary 4.58% to back over 12,000 points.

That's a two-and-a-half-month high. These gains were spurred by the likes of Apple rising close to 5%, Alphabet soaring more than 6%, and Tesla rocketing an incredible 7.67%.

So the BetaShares NASDAQ ETF was always going to have a cracking day. Why isn't it rising by 4.58% like its index, though?

Well, the BetaShares NASDAQ ETF houses assets priced in US dollars. But it is quoted in Australian dollars. Thus, currency movements affect its value, alongside the value of its underlying shares.

And while the US markets rocketed overnight, so too did the Australian dollar. A higher Aussie dollar means that US shares become less valuable in Australian dollar terms. So hence the more muted gains we have seen with the ETF.

Nevertheless, there's no doubt investors are very happy with this ETF today.

The post Why is the BetaShares NASDAQ 100 ETF (NDQ) having such a stellar run today? appeared first on The Motley Fool Australia.

Every so often, a company comes along and has so much success that many investors end up retiring millionaires by simply going along for the ride. Apple (NASDAQ: AAPL) is one of those companies. The tech giant has seen success matched by very few in history, and it has been rightfully earned. After all, it has world-class products, top-tier brand loyalty, and a bank account that other companies can only dream of having.

Past results are great, but a company's future outlook should be driving investing decisions. And although it's the largest public company in the world with a market cap of over $2.4 trillion -- more than Amazon, Berkshire Hathaway, and Tesla combined -- there's still room for noticeable growth for Apple.

Here's why it's a must-own for 2023.

Apple is just getting started in the finance industry

Apple first began its journey into the financial services space in 2014 with the announcement of Apple Pay, which allowed people to pay from their iPhones. However, this move was seen as more about convenience than Apple making its way into the space. Then came 2019 and the announcement of the Apple Card -- a sign Apple was clearly taking a step in that direction.

With the Apple Card, Apple relied on Goldman Sachs to approve applications and fund the loans, which is why when they announced Apple Pay Later -- their move into the buy now, pay later space -- it was no longer a mystery whether Apple was serious about becoming a player in the financial services industry. Apple Pay Later is the first time Apple is underwriting and funding loans by itself.

Apple has an advantage that no other financial institution can duplicate: Its iPhone is in more than 100 million hands in the US. Between the iPhone's world-class technology and the convenience it can provide, the company's play into the financial services space is bound to test even the most formidable of financial technology (fintech) competitors.

The iPhone still reigns supreme

The iPhone is arguably the greatest consumer product ever made; it has quite literally changed the world. Apple reportedly spent over $150 million developing the original iPhone, and to say they've reaped the returns on their investments would be the understatement of the century. In its 2022 fiscal year, Apple brought in $394.3 billion in revenue -- roughly $28.5 billion more than it did in 2021. The iPhone accounted for more than half of that, bringing in $205.4 billion.

The fact that the iPhone managed to increase its sales in a year defined by inflation not seen in decades is very telling of its power. In fact, this year was the first time ever that more people in the US used an iPhone than an Android phone. That's a remarkable milestone when you consider the iPhone's market share growth and much higher price point.

As long as the iPhone is padding Apple's bottom line, there's no reason to believe it won't continue to be one of the biggest cash cows you'll see from any business in any industry.

Apple is ramping up its research and development

Apple has historically spent a smaller portion of its revenue on research and development (R&D) than its other Big Tech competitors like Alphabet and Amazon. In 2020, here's how much the three companies spent on R&D and the percentage that was of their net sales:

• Alphabet: $27.6 billion (15%)
• Amazon: $42.7 billion (11%)
• Apple: $18.8 billion (7%)

In 2021, Apple's R&D budget increased to $21.9 billion, and in 2022, it jumped up to $26.2 billion -- a company record. Although this still represents a relatively low percentage of Apple's revenue, it's a sign the company isn't getting complacent and is putting more emphasis on taking advantage of potential growth opportunities.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Apple a must-own US stock in 2023? appeared first on The Motley Fool Australia.

The post-COVID slowdown hasn't been kind to Amazon (NASDAQ: AMZN), and the stock is down 45% so far this year. While the company's e-commerce operations are experiencing weak growth and margins, Amazon is much more than just an online retailer. Let's explore three potentially overlooked factors that could make the stock a buy for long-term investors. 

Cloud computing is Amazon's new backbone 

Amazon's third-quarter results were a mixed bag. Revenue grew by 15% year over year to $127.1 billion, but operating income almost halved to $2.5 billion because of challenges like inflation and overexpansion during the pandemic boom of 2020 and 2021. But while its North American and international e-commerce segments are both bleeding cash -- with operating losses of $400 million and $2.5 billion, respectively -- its cloud computing business, Amazon Web Services (AWS), is helping to pick up the slack. 

AWS segment revenue increased by 27% to $20.5 billion while its operating income jumped 11% to $5.4 billion. With both of Amazon's e-commerce segments burning cash, AWS is now Amazon's foundation. And investors may be overlooking its value. According to analysts at equity research firm Redburn, AWS alone could be on track for a $3 trillion valuation and could be spun off to unlock a better valuation. 

While Redburn's predictions are admittedly optimistic and don't come with a concrete timeframe, they do highlight the huge potential many industry watchers see in Amazon's cloud offering because of its economic moat, which includes a strong brand and economies of scale. The company is using these advantages to attract new clients such as power company Duke Energy, which entered a three-year cloud deal with AWS in November to modernize its electric grid.

Film entertainment could help too

First an online bookstore, then an e-commerce giant, and now the global leader in cloud computing -- Amazon is no stranger to reinventing itself. And while cloud computing looks likely to power most of the company's valuation growth, other business segments could also contribute. 

In November, Amazon announced plans to spend $1 billion a year to produce 12 to 15 movies that it will release in theatres annually. This decision comes in the wake of its March acquisition of Hollywood studio MGM, and could help lay the groundwork for the company to become a fully-fledged entertainment giant that can compete with the likes of Walt Disney.

The new content will also help create a competitive advantage for Amazon Prime, which includes a video-streaming service. 

Management hasn't provided guidance on how much revenue it expects Amazon's film production efforts to generate. But if it's successful, it could provide some much-needed diversification and growth to counteract the slowdown in the company's retail operations. 

Amazon's valuation is still reasonable

Amazon's significant stock declines have made the company more interesting for value-hungry investors. And while the company is far from distressed territory, its price-to-sales ratio of 1.9 is lower than the S&P 500's average of 2.4. And while Amazon's bottom line remains under pressure in the near term, continued growth in AWS and new business could help turn things around in the coming years.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons to buy Amazon stock right now appeared first on The Motley Fool Australia.

Imagine you could go back in time to November 2008. Amazon's (NASDAQ: AMZN) share price has dropped like a brick and is down well over 50% year to date. Would you buy the stock? You'd be crazy not to do so. Amazon went on to deliver a staggering 88x gain by the end of 2021.

Now let's return to the present. Amazon's share price has dropped like a brick yet again. It's down the most since that huge sell-off 14 years ago. Should you back up the truck and load up on Amazon stock?

Behind Amazon's plunge 

To answer that question, we need to first examine the factors behind Amazon's steep plunge this year. Much of the blame can be placed on macroeconomic headwinds and uncertainty that have caused the overall stock market to fall.

Amazon's revenue growth has been dampened by the strong U.S. dollar. In the third quarter alone, the company's sales were around $900 million lower due to unfavorable foreign exchange rates. 

But Amazon's growth is slowing even on a constant-currency basis. The company expects Q4 revenue will increase by only 2% to 8% year over year, with an impact of foreign exchange rates of around 460 basis points (or 4.6%). 

What's Amazon's main problem? Inflation. CFO Brian Olsavsky said in the company's Q3 conference call, "The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend." 

However, the top line isn't Amazon's only issue. The company's earnings are also falling because of a significant increase in spending. This has contributed to Amazon's free cash flow, arguably the most important measure of its financial health, sinking into negative territory.

Two important questions

One of the most important questions to ask when considering whether or not to buy Amazon stock now is: Are the company's issues only temporary? I think the answer is clearly "yes."

The two biggest challenges for Amazon right now -- the strong U.S. dollar and high inflation -- are intertwined. The dollar is strong in large part because of the Federal Reserve's monetary policy. And the Fed's policy, which is focused on aggressively raising interest rates, is in place to try to curb inflation.

Sooner or later, though, the Fed's moves will cause inflation to moderate. We're seeing a few signs that it could already be happening, such as the lower-than-expected producer price index announced earlier this month. When the Fed feels that inflation is in check, it will stop raising interest rates and will eventually lower them.

In the meantime, Amazon is wisely cutting costs to improve its bottom line and free cash flow. The company announced major layoffs recently. It's also shutting down several businesses that have weighed on growth.

There's also another important question that investors should consider: Does Amazon have strong growth prospects? Again, I think the answer to this question is a resounding "yes."

E-commerce in the U.S. made up only 14.1% of total retail sales in the third quarter of 2022. Cloud hosting remains an attractive option for businesses, with Amazon Web Services still the No. 1 player in this market. Amazon also has other potential growth drivers, including its moves into digital advertising, healthcare, and streaming TV.

Back up the truck?

Probably the biggest knock against Amazon is its valuation. The stock trades at more than 46 times expected earnings. I suspect that most discounted cash flow models analyzing Amazon would indicate that the stock is overvalued despite its sharp decline this year.

However, Amazon has appeared to be overvalued throughout its entire history. That hasn't prevented the stock from delivering massive returns. The reality is that Amazon is a business that's difficult to value because its management team continually comes up with new ways to grow. That's a good "problem" to have for investors.

Amazon isn't likely to go on the huge surge going forward as it did after 2008. But I fully expect the stock will nonetheless return to its winning ways in the not-too-distant future. Should you back up the truck and load up on Amazon stock? I think so.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you back up the truck and load up on Amazon stock? appeared first on The Motley Fool Australia.

As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023?

Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

The indexes are highly concentrated on the top

At the top, the indexes have a lot of overlap.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

As you can see, Apple, Microsoft, Amazon, and Alphabet make up a considerable chunk of these indexes. In the S&P 500, they account for 19.83%. It's basically double for the Nasdaq-100, with that group making up 39.16% of the index. It's pretty straightforward: How these companies do will significantly steer how the overall index does.

While these three are tech-focused, they compete in different markets. Both Apple and Amazon are a good measure of the pulse of the consumer, as their sales are highly affected by consumer sentiment. If inflation cools, and consumers don't need to worry about rising grocery prices or housing costs, they may treat themselves to the latest device.

Alphabet and Microsoft are business-focused, but for different reasons. Alphabet's primary revenue stream is advertising, and many clients have pulled back their spending levels in 2022 due to the uncertain business environment. If the outlook improves, expect this revenue to return. Microsoft's cloud business and Office product suite indicate how willing businesses are to spend on their infrastructure, but Microsoft's consumer product division also indicates how individuals are doing. 

If the consumer gets stronger and business outlook improves, these four will boom. If that's the case, then the Nasdaq-100 will likely have a better year because it is concentrated in companies that will benefit the most. But if 2023 brings an economic recession, the S&P 500's diversity will help it to outperform the Nasdaq-100.

The companies outside the top five are very different

For the S&P 500, when you move out of the top five, the companies become much more diverse.

Data source: Slickcharts. Data as of Nov. 19.

Now, there are industrials, healthcare, and energy sectors represented, giving the index some much-needed balance. Looking at the top 20 reveals even more diversity, with financials, energy, and healthcare rounding the index out.

This is far from the case for the Nasdaq-100.

Data source: Slickcharts. Data as of November 19. Note: Both Alphabet class shares combined.

Besides Pepsi and Costco, these companies are more in the tech sector. But, unlike the S&P 500, it doesn't get much better outside the top 10, with most of the top 20 consisting of chipmakers, communication companies, and software businesses. Now, this probably isn't a surprise because the media often refers to this index as the "tech-heavy Nasdaq."

Still, tech businesses don't do well if the economy is struggling.

Does that mean you should write the Nasdaq-100 off? Absolutely not. Tech stocks tend to do very well in the recovery phases of a recession. Plus, the stock market is forward-looking, and stocks usually tend to do better during a recession than leading up to one.

That last tidbit of information should keep investors in the market, especially now with a recession, or at least an economic slowdown, imminent. However, if you're trying to decide which index to buy, you need to utilize the 2023 outlook. If you think 2023 will be a repeat of 2022, then the S&P 500 is the better choice. On the other hand, if you believe the economy will begin to recover and the Federal Reserve eases its interest rate hikes, then the Nasdaq-100 is the place to be.

One last point: There's nothing wrong with owning both indexes if you don't know what 2023 will bring. Personally, I think this is an intelligent strategy, as it gives investors the upside of recovery and the safety of a balanced investment.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Will the Nasdaq or S&P 500 have a better 2023? appeared first on The Motley Fool Australia.

Amazon (NASDAQ: AMZN) is one of the most well-known e-commerce companies on the planet. Investors watched its market value soar to more than $1.8 trillion during the earlier days of the pandemic. And over time, the company has delivered a lot more than groceries or books to your doorstep. It's also delivered top-notch earnings growth and share performance.

This year, though, the stock is heading for a 44% decline. Why? Amazon isn't immune to the pressures hurting the entire retail sector. I'm talking about higher inflation and general economic woes. Now, as we head toward 2023, you may be wondering what to do about this beaten-down stock. Let's check out two reasons to buy Amazon -- and one reason to sell.

1. A steal on a monster margin business

When we think of Amazon, we may focus on e-commerce. But the company's biggest moneymaker is actually its cloud computing business. That's Amazon Web Services, or AWS. Last year, AWS made up more than 70% of Amazon's total operating income. That's huge.

But here's what's even better. AWS's margins are enormous. Operating margin averages about 30% each quarter. How does that compare to Amazon's e-commerce margins? In the earlier days of the pandemic, as revenue surged, Amazon's e-commerce operating margin came in at about 4%.

So, not only is AWS generating revenue in the billions of dollars -- but it's also making a good deal of profit from every dollar sold.

In even more good news, if you buy Amazon shares right now, you'll get all of this growth for a steal. The stock trades at only 1.9 times sales right now. That's its lowest by this measure since 2015.

2. Prime is getting stronger

Amazon's e-commerce business has seen better days. Rising inflation is hurting it in two ways. First, it's pushed Amazon's costs -- fuel to transport goods, for example -- higher. Second, it's weighing on customers' wallets. So, they may spend less on Amazon.

But before we give up on Amazon's e-commerce business, it's key to look at the growth of its Prime subscription program. In the most recent quarter, Amazon said Prime Video release The Lord of the Rings: The Rings of Power spurred more new Prime subscriptions than any other Amazon original. And the first broadcast of NFL Thursday Night Football sparked the three-biggest hours of Prime signups ever.

Amazon also said this year that members are spending more -- and relying more on Prime than ever before.

Prime already includes more than 200 million members worldwide. The recent growth, along with longtime members, should translate into more revenue growth in the coming year. And that could lead to positive share performance.

Reason to sell: Amazon isn't out of the woods yet.

Today's economic woes won't disappear overnight. And neither will the impact they've had on Amazon's earnings. Amazon's operating income dropped by almost half year over year in the third quarter. And free cash flow has shifted to an outflow over the trailing 12-month period. Amazon's return on invested capital also is falling. 

Investors may wait for significant earnings improvement before returning to the Amazon story. And if this happens, the stock may slip further -- or stagnate in the new year. Some investors who already have gained over time on their Amazon position may be tempted to sell -- and invest in a company less sensitive to today's economic environment.

Should you buy or sell?

The reasons to buy Amazon outweigh the reason to sell this great, long-term stock. It's impossible to guarantee Amazon stock will recover next year. But today, valuation looks good considering the long-term picture.

AWS's strength and Prime's growth may give the stock reason to climb -- as soon as next year. And investors who get in on the shares now would benefit.

What if Amazon takes longer to recover? That's OK too. The company's leadership in the growth markets of e-commerce and cloud computing mean Amazon stock is very likely to thrive. And that could equal enormous returns over time.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Amazon (NASDAQ: AMZN) is one of the best-performing stocks of the past generation, but 2022 has mostly been a disaster for the tech giant. The stock is down 47% year to date, revenue growth has slowed to all-time lows, it's closed dozens of warehouses after overestimating demand, shuttered once-promising projects like Amazon Care, and just reported that it's laying off 10,000 corporate employees.

While it's clear Amazon has struggled this year, those challenges seem well-reflected in Amazon's stock price. Plenty of investors seem to think the stock could be a bargain right now, but is it really cheap? Let's investigate.

How to value Amazon

Amazon isn't an easy company to value. It's a combination of several businesses, including direct online retail, third-party e-commerce, advertising, cloud infrastructure, hardware and devices, a supermarket chain, and its Prime membership program that ties many of those segments together.

The stock has long traded at a high price-to-earnings valuation because investors have assumed it could be more profitable if it stopped investing so aggressively in future growth. Amazon's international business, for example, has historically been unprofitable, but that's because the company is investing in emerging growth markets like India. Its mature international markets, like the U.K. and Japan, are profitable.  

Since Amazon's earnings are volatile and not entirely reflective of the business's strength, valuing the business based on its price-to-sales (P/S) ratio may make more sense.           

AMZN PS Ratio data by YCharts. PS = price to sales.

As you can see from the chart above, Amazon is as cheap as it's been since 2015. Before then, the P/S ratio mostly ranged between 1.5 and three. But there's a reason it began to surge that year. That was when Amazon reported Amazon Web Services (AWS) as a separate business segment.

Investors bid Amazon stock higher in response, recognizing the potential of the cloud infrastructure. The stock more than doubled that year and nearly quadrupled over the following three years.

AMZN data by YCharts.

Since the first time it was reported as a separate business segment, AWS has grown from $1.56 billion in quarterly revenue with a 17% operating margin in Q1 2015 to $20.5 billion in revenue with an operating margin of 26.3%.

The sum of the parts

Since Amazon is primarily made up of an e-commerce business with high revenue and thin margins and a cloud infrastructure business with less revenue but wide margins, separately valuing the two businesses may make the most sense.

AWS is on track to bring in $80 billion in revenue and $23 billion in operating income this year, and sales grew 27% in its most recent quarter. AWS doesn't have pure-play peers, so there's no precise way to value it. Still, with that kind of growth rate and evident competitive advantages, a multiple of at least 30 times operating income, if not closer to 50, seems appropriate. That would value AWS between $690 billion and $1.15 billion.

Another way to value AWS is based on the P/S ratio. Cloud software stocks with similar top-line growth rates tend to trade at P/S multiples in the high single digits. At a P/S ratio between five and 10, AWS would be worth between $400 billion and $800 billion.

Now, let's look at Amazon's e-commerce business, which we can compare to other e-commerce companies. Since these businesses can vary from direct sales to third-party marketplaces to hybrids like Amazon, it's best to look at the gross merchandise volume (GMV), or total value of goods sold on the platform. The chart below shows how a few e-commerce stocks trade as a multiple of GMV for 2021.

Data source: Yahoo! Finance and company filings. GMV = gross market value.

There's a fairly wide range among Amazon's e-commerce peers, and investors should keep in mind that e-commerce valuations are down right now since growth in the sector has slowed. Amazon doesn't report GMV, but Statista estimates it at $610 billion.

Considering that Amazon's e-commerce segment includes advertising, which is on track to bring in close to $40 billion in high-margin revenue this year, a price-to-GMV ratio of one (similar to Etsy) seems fair. That would value the e-commerce business at $610 billion. Or to be more conservative, we could measure this business based on a P/S multiple of one. That would give it a valuation of $400 billion since the e-commerce business is expected to bring in roughly $400 billion in revenue this year.

Is Amazon stock a good buy?

Based on the numbers above, Amazon's fair valuation is anywhere from $800 billion to $1.76 trillion. (For comparison, Amazon's current market capitalization is around $1 trillion.) Additionally, Amazon's valuation multiples are likely to expand if its growth rate improves or its e-commerce business returns to profitability.      

The good news for investors is that most of Amazon's challenges are temporary. Macro headwinds will eventually dissipate, e-commerce growth will resume, and the company will likely improve its cost structure. While a comeback in the stock may not be immediate, the shares look well-priced, and Amazon still has plenty of opportunity ahead to ramp up profit.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There's no denying that 2022 has not been a great year for Amazon (NASDAQ: AMZN) stock. It's easy to look at a chart, see that the stock is down over 40% year to date, and begin to panic.

Understanding why the stock has cratered is a bit more complex, though. At its core, Amazon can be thought of as two businesses: E-commerce and cloud computing. While the company has made a number of strategic investments in advertising, gaming, and media, the e-commerce and cloud segments are, by far, its largest operations.    

Given the lingering effects inflation has on consumer purchasing power, coupled with fears of recession and corporations adjusting budgets, both the e-commerce business and the cloud segment for Amazon have been beaten down.

As a result, the company is laying off employees in an effort to scale back expenses and preserve operating capital. While all this certainly is concerning, investors need to zoom out and think long-term. Amazon has several growth levers that have not reached peak performance, and the stock has done nothing but fall since its split earlier in the year. Let's dig into Amazon's entire business, analyze what's growing and what's not, and determine if the stock's current valuation makes it a buy. 

The current state of Amazon

For the three months ended Sept. 30, 2022, Amazon reported $127 billion in total revenue, up 15% year over year. The company's North American operation increased 20% annually, while its cloud segment, Amazon Web Services (AWS), increased 27% year over year. Meanwhile, Amazon's International segment decreased 5% year over year. This is not entirely surprising when accounting for the fact that the company experienced a $5 billion negative effect from foreign exchange during the third quarter.

While revenue increased in two out of three of Amazon's reporting segments, it's more important to analyze the profitability profiles of each business. Despite 20% revenue growth in North America, this segment reported nearly $400 million in operating losses during the quarter. On top of that, the International segment reported $2.5 billion in operating losses just in Q3 alone. It's important for investors to remember that these segments have been operating near breakeven levels for several quarters now.  

Now, as inflation continues to affect consumer spending and corporate budgets, executives must take a look at the entire business and find ways to stretch cash. During the Q3 call, Amazon CFO Brian Olsavsky stated:

As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as the increased foreign currency headwinds I mentioned earlier, and we expect these impacts to persist throughout the fourth quarter. As we've done at similar times in our history, we're also taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.

Management did not mince their words. Amazon is cutting costs, mostly in the form of headcount reductions. While this can appear as a cause for concern on the surface, these synergies are what mature companies must execute during times of an unclear macroeconomic outlook. 

When in doubt, zoom out

While Amazon separates its revenue into North America, International, and AWS segments, a number of sub-categories comprise these three larger streams. The table below illustrates Amazon's revenue by sub-category for the last five quarters.

Data source: Page 14 of Amazon's Q3 2022 earnings press release.

Looking at the data above, let's isolate two viewpoints: Quarterly growth and annual growth. Comparing each sub-category to Q3 2021, investors can see that Amazon is generating growth across its entire business. Now, if we dilute this to quarterly growth throughout 2022, investors can also see that revenue is either growing, or in a worst-case scenario, is flat quarter over quarter.

If we zoom out, we should think about two things here. First, it's pretty amazing that Amazon is generating growth across its entire business in consecutive quarters, even during times of volatile economic activity. However, as pointed out above, revenue growth is only one component to keep in mind. While Amazon has generated consistent growth, it has also invested heavily in the business, and so not all these sub-categories are profitable.      

Where do we go from here?

Given the current economic climate and the financials above, freezing new hires and having layoffs is a tough, but necessary, reality. In an interview on CNBC, CEO Andy Jassy said that the layoffs would occur throughout the fourth quarter and carry into 2023. More specifically, he acknowledged that the cost reductions would be contained to Amazon's devices and services segment, as well as stores.

It's important to note that during this interview, Jassy assured investors that fulfillment workers would not be affected due to anticipated demand from the upcoming holiday season.

During the earnings call, Olsavsky stated: "We're also continuing to invest in new infrastructure to meet capacity needs, expanding to new geographic regions, developing new services and iterating quickly to enhance existing services."

As an investor, the above comment is encouraging. While management is admitting that the organization as a whole may be bloated, they're only reducing expenses in non-core initiatives. In other words, Amazon will continue to fund areas such as the cloud and advertising, both of which generate consistent growth and margin.

Amazon is currently trading roughly 2 times price-to-sales, or about half what it was trading at this time last year. As the stock trades near 52-week lows, it is tempting not to scoop up some shares.

In the long term, Amazon is a terrific, blue-chip stock to own. And given its current valuation, now is a great opportunity to lower your cost-basis. Long-term investors should keep a keen eye on the following earnings reports to ensure that management is executing on the cost reductions. Should these go according to plan, Amazon should recognize increased profits, which it can then use to stockpile cash or invest in growth areas when the time is right.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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What happened

Shares of e-commerce giant Amazon (NASDAQ: AMZN) were down more than the markets today, declining 2.9% as of 11:30 a.m. EDT.

While the broader tech indexes were down as investors appeared to be trimming gains from the recent run-up in stocks, Amazon fell more, perhaps due to a negative Wall Street Journal article on the e-commerce giant regarding some recent customer satisfaction surveys.

So what

On Monday, the Wall Street Journal published an article on its home page whose thesis is that customer satisfaction at Amazon's e-commerce unit might be waning. Right ahead of the holidays, that's not a great headline, certainly for a company that preaches "customer obsession."

The article cited three broad customer satisfaction surveys.

• First, Evercore ISI held its regular survey of Amazon customers, revealing that the proportion of customers that considered themselves "extremely" or "very satisfied" with Amazon came in at "just" 79%. While that's higher than in the depths of the pandemic, when there were widespread delays, it is down from the peak rate of 88% from one decade ago.
• Furthermore, a different survey from the American Customer Satisfaction Index gave Amazon a score of 78 out of 100, its worst performance since 2000.
• Finally, consulting firm Brooks Bell also conducted a study of 1,000 Amazon customers, finding that roughly one-third reported late deliveries or products of low quality.

The findings are certainly concerning, since the general step-down in satisfaction is showing up in three different surveys. Of course, the effects of the pandemic are still being felt in terms of labor shortages and other factors. Furthermore, competing e-commerce sites don't have nearly the volume that Amazon does, nor do they make the promises Amazon does, such as the recent push for one-day shipping. Amazon has kept ratcheting up its promises, giving it a higher bar to clear.

Still, there might be real problems here. The increase in third-party sellers on the platform could be causing some issues with product quality. Also, the ramp-up in advertising on the website could complicate customer searches if results are overloaded with ads from irrelevant or lower-tier brands. And the automation of customer service could be frustrating to people who wish to easily speak with a human being.

Amazon likely can't afford to pull back on those elements, because third-party sales have grown at a higher pace than first-party items, and advertising revenues have been one of the bright spots in Amazon's earnings results over the past few quarters, even as e-commerce has struggled more broadly. The e-commerce unit has also dipped back into losses, so investing heavily in more in-person customer service would also increase costs.

AMZN PS Ratio data by YCharts.

Now what

The recent survey results aren't a reason for long-term Amazon investors to panic even though the stock is down more than the market today. The WSJ notes that Amazon spent $1 billion last year combating counterfeiters, fraud, fake reviews, and other bad actors on the platform. Just a couple weeks ago, Amazon's Counterfeit Crimes Unit helped identify and disrupt three major counterfeit networks in China, where 240,000 fake items were seized by authorities. Commenting on the WSJ article, an Amazon spokesperson also noted high ratings for its mobile app.

Amazon also has a history of tackling problems head-on and doing the difficult work to overcome them, which is why it's enjoyed such long-term success. However, investors should keep a watch on these customer surveys as well as announcements from Amazon and its management team about how they are going to improve on these issues.

After a brutal year for tech stocks and with a potential recession looming, Amazon's valuation on a price-to-sales basis is now the lowest it's been since early 2015, just before it broke out the results from Amazon Web Services. As long as Amazon isn't in terminal decline -- and I don't think it is -- shares are looking like quite the deal these days for long-term-oriented investors. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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But the BrainChip Holdings Ltd (ASX: BRN) share price is doing even worse than that. Brainchip shares have slumped in value so far today. The ASX artificial intelligence company has taken a 2.02% dip at this point of today's session. That puts Brainchip at 63 cents a share.

This might be especially disappointing for investors this Monday, given the corporate announcement that Brainchip released yesterday.

Brainchip share price struggles despite new Amazon recruitment

The company announced that it has recruited Nandan Nayampally as chief marketing officer. Nayampally's role will inove driving "all aspects of marketing, product management and business strategy for the company's Akida TM event-based AI neural processor IP, and its portfolio of Essential AI enabling technology solutions".

The crown jewel of Nayampally's curriculum vitae had a former role at US tech giant Amazon.com Inc (NASDAQ: AMZN). Here, Nayampally reportedly "helped accelerate the adoption of Alexa Voice and other multimodal services into third-party devices".

Here's some of what Brainchip CEO Sean Hehir had to say on recruiting Nayampally to the company:

Nandan has a deep technical understanding of semiconductor design and IP as well as the market factors that lead to product success… We look forward to leveraging his product experience and executive success at companies like Arm and Amazon to help us deliver BrainChip solutions to the market.

Nayampally added this:

I am excited to join BrainChip. Our unique approach to performant and efficient edge AI at scale is a great enabler for an industry that is looking for innovative and transformative solutions…

It is a great opportunity to not only advance product intelligence at the sensor and the edge but unleash the full power of AI. BrainChip is positioned to create that positive change and I'm thrilled to be a part of making that happen.

But it doesn't seem like investors are too impressed by this announcement, judging by the performance of the Brainchip share price this Monday.

Brainchip shares have copped a nasty beating over 2022. The company remains down 20% year to date. As well as down more than 73% from the record high of $2.34 a share that we saw back in January.

The post BrainChip share price dips despite ex-Amazon hire appeared first on The Motley Fool Australia.

It's clear that Amazon (NASDAQ: AMZN) wants to make its mark in the world of healthcare. The e-commerce giant opened a pharmacy service two years ago. And the company's trying to get a foothold in telemedicine, though it hasn't been easy. Amazon is shuttering its own service, Amazon Care, and is in the process of buying 1Life Healthcare (NASDAQ: ONEM), better known as One Medical -- a provider of in-person and virtual care.

But Amazon isn't stopping there. Its latest news is the creation of Amazon Clinic. This is an online service that lets you connect with clinicians for a variety of minor problems -- and get answers and prescriptions.

Let's take a closer look.

An El Dorado

Telemedicine represents a sort of El Dorado for players and potential players. The U.S. market is forecast to grow at a compound annual growth rate of more than 15% to nearly $25.9 billion by 2027, according to Polaris Market Research. Competition is high. And even a company with the resources of Amazon probably will have trouble beating a leader like Teladoc Health.

But Amazon's latest move may offer it an advantage in a niche market. Teladoc and others sell complete healthcare plans to corporations or individuals. But Amazon Clinic isn't a plan: It works like an online clinic -- and anyone can use it.

If you've ever spent hours waiting at a walk-in clinic, you'll probably understand the potential of Amazon's latest venture in healthcare. Instead of going to an in-person clinic if you have a minor problem like sinusitis or pink eye, you fill out a questionnaire about your symptoms on Amazon. Then it connects you with a medical professional who will send you a treatment plan.

The service isn't covered by insurance. The price varies depending on the state you live in and the clinic you choose -- but as an example, a consultation for pink eye costs $30 to $35 at a Florida clinic on the platform.

Amazon Clinic is sure to be an easier alternative than waiting around at a crowded walk-in clinic for treatment. So the service does have potential to fill a need -- and become successful.

Does this make Amazon a buy? First, let's answer another question: Will Amazon Clinic make Amazon a major player in healthcare? That's unlikely.

A niche market

Even though this looks like a positive step for Amazon, we're talking about a niche. The revenue opportunity is limited. And the business won't necessarily drive patients to Amazon Pharmacy -- the prescriptions can be filled anywhere.

So, I wouldn't buy Amazon shares for this move. I wouldn't even buy shares for the company's plan to grow in the healthcare market, because it's still way too early to predict whether Amazon can become a leader.

The company has already stumbled twice. As I mentioned earlier, it's closing Amazon Care as of the end of this year. And last year, it ended a healthcare joint venture with Berkshire Hathaway and JPMorgan Chase.

But note that I actually would buy shares of Amazon today. Rather than for its healthcare efforts, I'd buy them for its long-term growth potential in e-commerce and cloud computing.

Right now, higher inflation and general economic woes are weighing on those businesses. But these are temporary problems. Over the long term, Amazon has the market share and resources to thrive.

Today, the shares are trading at 1.9 times sales. That's around the lowest level by this measure since about 2015.

Amazon's ambitions in healthcare are something to watch. But the company's two main businesses are what make the stock a steal at today's levels. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Does Amazon's latest healthcare move make the stock a buy? appeared first on The Motley Fool Australia.

What happened

Shares of Amazon.com (NASDAQ: AMZN) declined on Wednesday after rival retailer Target (NYSE: TGT) reported a steep decline in profits. By the close of trading, Amazon's stock price was down 1.8% after falling as much as 3.4% earlier in the day.

So what

Target was forced to issue heavy discounts to clear out excess inventory. That weighed heavily on the discount retail chain's profitability. Its gross and operating margins fell to 24.7% and 3.9%, respectively, in the third quarter, from 28% and 7.8% in the prior-year period. Target's earnings per share (EPS), in turn, plunged 49% year over year to $1.54.

The retailer's guidance was even more alarming to investors. Target now projects "a low-low-single digit decline" in same-store sales. Management also expects the company's operating margin to decline further, to 3%.

"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates, and economic uncertainty," CEO Brian Cornell said in a press release.

Worse still, chief financial officer Michael Fiddelke said during a conference call with analysts that the downturn could persist into 2023.

"As we look beyond the holiday season, we're planning for a continued challenging environment as we move into next year," Fiddelke said. 

Now what

Target's troubles are also worrisome for Amazon's shareholders. A further decline in consumer discretionary spending could dent the e-commerce titan's sales and profits, which are already under pressure from inflation concerns and recession fears.

Amazon's actions suggest it is bracing for such a scenario. The company is slashing costs in its massive fulfillment network and scaling back on unprofitable projects as it works to bolster its sagging profitability.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Amazon stock fell today appeared first on The Motley Fool Australia.

Of all the tech titan stocks that have been clobbered this year, Amazon (NASDAQ: AMZN) is arguably one of the more surprising losers. Shares of the e-commerce and cloud computing giant have fallen over 40% so far in 2022. That fall comes despite Amazon holding onto the retail gains it picked up during pandemic lockdowns, and the continual growth in its AWS [Amazon Web Services] cloud segment by a strong double-digit percentage.  

Investors weren't pleased with the Q3 2022 report. Management indicated more slowing growth could lie ahead as a record run-up in the dollar (a result of the U.S. Federal Reserve's huge interest rate increases this year). But, despite this weakness, Amazon is putting massive amounts of cash to work to bolster its most important business. Is now a once-in-a-decade buying opportunity for this top tech stock?

Re-allocating investments from e-commerce to tech

Amazon CFO Brian Olsavsky said on the last earnings call that the company was going to wind up allocating about $60 billion on capital expenditures (or capex, spending on property, plant, and equipment) in 2022. This figure is roughly in line with capex spend in 2021, even though Amazon's growth has slowed significantly. This level of capex also dwarfs the capex spend of fellow tech titans -- even Meta Platforms (NASDAQ: META) and its huge bill on data center equipment in support of its metaverse aspirations.  

Data by YCharts

Why does Amazon spend so much more on capex than its peers? For one thing, Amazon isn't just tech. It's also an online retailer. While an online store like Amazon looks like an asset-light business, it isn't. Behind the scenes, Amazon has been spending heavily on things like distribution centers and delivery services to accommodate the explosion of sales it picked up in 2020 and 2021.

But there's something interesting going on with Amazon's capex. Specific numbers were not revealed, but Olsavsky said that $10 billion in capex has been reduced from fulfilment and transportation projects as e-commerce has quieted down. However, that $10 billion has been reallocated to "technology infrastructure, primarily to support the rapid growth, innovation and continued expansion of ... [its] AWS footprint."

Betting big on the business that matters most

This is incredibly significant, especially considering that the AWS cloud computing segment is -- and has been for years now -- the primary engine of Amazon's profitable growth. You see, as great as a seemingly endless collection of products and fast delivery times may be, e-commerce just isn't all that profitable a business for Amazon. Add-on services via Amazon Prime and selling ads within its marketplace are. But at the end of the day, it's AWS that's generating the positive income. 

Data source: Amazon

But why allocate so much extra capex to AWS now, especially given the tough economic climate we're weathering right now? After all, lots of companies out there are cutting spending to boost profits. It was even reported that AWS customers have been working with the company to reduce their spending on the cloud right now, by switching to lower-cost computing workloads and services. 

As a result, while AWS has grown revenue by 32% so far in 2022, management indicated Q4 year-over-year growth was trending toward just a mid-20% growth rate. Meanwhile, Amazon has dipped deep into the red as it puts lots of money to work to promote future (and uncertain) growth. Free cash flow (operating income minus capex) was negative $26 billion over the last 12 month stretch.  

Nevertheless, Amazon sees a big opportunity, so it's expanding its cloud footprint into new geographies and bolstering its capabilities in existing data centers. Just as disruption from the pandemic forced many organizations around the globe to accelerate their adoption of the cloud, Olsavsky said inflation (especially in energy and computing hardware costs) is having a similar disruptive impact right now. By switching their tech infrastructure to a cloud provider like AWS, a company can ultimately get more flexible with, or reduce, their expenses. Olsavsky explained:

[T]he benefit of cloud computing is really showing up right now because we allow customers to turn what can normally be a fixed expense into a variable expense, and they can let us manage the highs and lows of inflation and other cost of electricity and everything else. And they can get ... to do their business using our services in a very highly secure way. So I think just like in 2020, these time periods are good for long-term adoption on cloud computing. But the offset in the short run is that some companies have demand that drops.

Long story short, Amazon sees behavior-altering changes happening in the economy right now, which spells opportunity for AWS to get aggressive and acquire lots of new customers. Wall Street clearly isn't comfortable with the company spending so heavily, but what else is new? This is far from uncharted territory for Jeff Bezos' empire. If AWS's expansion right now pays off like it has in times past, Amazon stock's giant drop this year can mean opportunity for farsighted investors as well.

Of course, since Amazon has fallen into unprofitability at the moment, it's difficult to accurately stick a fair value on shares. However, management also said it expects to taper down its aggressive spending in the coming years, which would create some earnings leverage. In other words, this stock is incredibly cheap right now. That is, of course, assuming you think Amazon's profitability, as measured by earnings per share, will sharply spike at some point in the next couple of years, and then level back off to a high single-digit or low-teens percentage growth rate after that. (Or if you think free cash flow will spike and turn positive again).

If you have ever felt like you missed the boat on Amazon stock over the last decade, now looks like a prime opportunity to buy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Amazon's (NASDAQ: AMZN) big news so far this week was the announcement on Monday that the company plans to lay off 10,000 workers. However, the e-commerce and cloud-hosting giant followed up with an even more surprising development.

On Tuesday, the company introduced its new virtual care service, Amazon Clinic, which "connects customers with affordable virtual care options when and how they need it." Is Amazon stock a buy after the unveiling of this new healthcare service? 

The second time's the charm?

If this story sounds really familiar, it should. Amazon launched another virtual care service called Amazon Care in 2019. However, the company is shutting that service down by the end of this year.

How does Amazon Clinic differ from Amazon Care? For one thing, it's much more limited in scope. Amazon Clinic will provide virtual care only for about 20 common conditions. These include acne, allergies, migraines, and urinary tract infections. 

Amazon Care was available nationwide. Amazon Clinic, though, will at least initially be available in only 32 states. Amazon Care also offered in-person healthcare services in many cities, while Amazon Clinic will provide only virtual care services. 

With Amazon Clinic, customers will be able to choose from a list of licensed telehealth providers. However, they'll have to pay for the services out of pocket. Amazon Clinic won't accept insurance, at least for now.

Potential impact

Amazon's shares jumped nearly 4% in early trading on Tuesday. Were investors celebrating that Amazon will once again join the ranks of telehealth stocks? Maybe a little. However, the main reason for Amazon's surge was that all the major market indexes rose after October wholesale prices increased less than expected.  

The reality is that the impact of Amazon Clinic on the company's overall business will almost certainly be quite small. Amazon generated revenue of $127.1 billion in the third quarter. It would take a lot of virtual care visits to even amount to chump change in comparison to that massive sales total.

Sure, Amazon Pharmacy could receive a boost from prescriptions stemming from Amazon Clinic. But customers will be able to choose other pharmacies as well. The increased volume for Amazon Pharmacy probably won't be large, especially in the early innings for Amazon Clinic.

Amazon did say that its healthcare services will be eligible for flexible spending accounts (FSAs) and health savings accounts (HSAs). However, not accepting insurance will almost certainly get in the way of Amazon Clinic making a big impact on the company financially. 

Two different questions

Is Amazon stock a buy because of its new healthcare service? No. The impact of Amazon Clinic probably won't be great enough to influence investors' buying decisions. However, whether Amazon stock is a buy at all is a different question. I think that the answer to this second question is a resounding yes.

Amazon still has significant growth opportunities. The latest indication that inflation could be moderating should be great news for the company. Lower inflation would benefit Amazon's e-commerce business as well as its Amazon Web Services cloud hosting unit.            

The stock has fallen the most from its peak since the Great Recession. History shows that when Amazon experiences a steep decline, it roars back.

Amazon Clinic could eventually be a huge success. But even if it isn't, the virtual care service highlights Amazon's ability to expand into new markets. Sometimes the company will win with these moves and sometimes it won't. However, stocks with as many potential ways to generate growth as Amazon tend to perform really well over the long term. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Amazon unveils new healthcare service: Is the stock a buy? appeared first on The Motley Fool Australia.

Amazon (NASDAQ: AMZN) has operated outside of North America for nearly 25 years, but the company is still losing tons of money abroad.

Its international segment, which is primarily made up of e-commerce sales outside of North America, has lost $5.5 billion through the first three quarters of 2022, and has been in the red for much of its history.

At a time when Amazon stock seems to be in freefall, it's easy to place the blame on the international business and the other unprofitable businesses like it. The company has long prized growth above profitability, and founder Jeff Bezos instilled a culture of managing the business for the long term, placing relatively little value on short-term profits. 

However, there's more to the international business than meets the eye. Although the segment is losing money, it's not as if Amazon is failing in every country it operates in. In fact, there's an opportunity for the company to significantly boost its profitability by streamlining its business in international markets, and the market seems to be ignoring it.

A mix of markets

Amazon operates local sites in over a dozen countries, but some international markets are much more mature than others. 

For example, it has operated in the UK since 1998, but it just launched a local site in Belgium in the third quarter. On the earnings call, CFO Brian Olsavsky explained why the company is losing so much money this year in the international segment:

[I]nternational is always a mix of profitability in more established countries of Europe and Japan, offset by emerging countries and investments in Prime benefits. I think the biggest issue quarter over quarter, [is that] the increase in losses versus Q2 was tied to some additional operating costs in Europe. We've seen higher fuel costs there, even more certainly in the United States.

He also said that Prime Day sales tend to lead to losses, as the company sells a lot of devices for the shopping holiday, which it generally sells at cost to then create a profit stream through selling content on those devices.

But it's worth taking stock of Olsavsky's statement. Amazon isn't profitable because it's incapable of turning a profit abroad. Instead, the company continues to invest in growth by adding Prime benefits in these countries and pouring billions into emerging markets like India, which Bezos sees as a generational bet.

Is it time for restraint?

Although Amazon has more control over its international business than it might seem, that doesn't change the fact that it has still lost more than $5 billion from the segment this year, and much more than that over its history.

With overall revenue growth slowing to single digits and its core e-commerce businesses losing money in both the North America and International segments, Amazon is tightening its belt like never before. The company has paused hiring in divisions, including corporate retail and Amazon Web Services. It's also pulling the plug on experiments like Amazon Care, its telehealth and in-person healthcare initiative, and Scout, its delivery robot. 

With the international segment burning $2.5 billion in the most recent quarter, it may be time for some belt-tightening abroad as well. 

Amazon has built a huge business outside of North America, with revenue on track to top $100 billion this year, but it's not worth much if it can't turn a profit there. Whether its investments in countries like Belgium and India will pay off still remains to be seen.

It may not be so easy for Amazon to flip the profitability lever in the international sector, as it's not going to pull out of the markets it's already operating in. But finding a way to improve the bottom line in the international segment would go a long way toward improving the company's overall financial picture.

The good news is the company is in the middle of a cost-cutting review that's likely to slash at least some expenses in international markets, which seems ripe for such an opportunity. With Amazon already losing over $5 billion in that segment this year, cutting billions in expenses could send the stock soaring, especially as it's down 50% from its peak last year.

With that in mind, investors would be wise to buy the stock now before the impact of those moves shows up on the bottom line.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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