How to buy Amazon stock: an investment guide

Amazon is a United States (US) share listed on the US Tech 100 (Nasdaq 100) so when buying from Australia, an foreign exchange (FX) fee will be required.

Buying Amazon stock: how to invest

1. Research Amazon shares
2. Open an online account or download the IG trading app
3. Decide how much money you want to invest
4. Place your investment

What to consider before buying Amazon shares

Investing in shares carries risk and you could lose more money than you invest. It is crucial to develop an investment plan to help mitigate this risk before buying Amazon shares.

Here are some important factors to bear in mind:

Know your long-term goals

Having clear reasons for investing can help you make crucial decisions, such as the amount you choose to invest and the duration you plan to hold the shares before taking a profit. Investing involves risk, so evaluate whether, over the long term, you can afford to lose money if market conditions go unfavourably.

Know when you’ll need the money

When you invest in Amazon shares, the value of your capital increases by the value of the shares. This is likely to provide greater returns than cash savings, which only grow by the interest rate received.

Shares are usually held for 10 or more years for greater returns, so it is worth considering when you will need the money. If you plan to buy a house in the next two to three years, consider delaying this goal or exploring shorter-term strategies such as trading, bonds, or savings accounts.

If you are still intent on investing, it is recommended you buy lower-risk shares like Amazon. Although no investment is risk-free, Amazon is a mature company with strong revenue growth since its initial public offering (IPO) in 1997. Therefore, its stock price is less volatile than newer shares, potentially making it a good investment if you aim for short- to medium-term profit.

Consider how much risk you can take

Financial markets can be unpredictable and there is always the risk you could lose more capital than you put in. A risk management strategy can help minimise losses if the market moves against you. 

This could include:

• Creating a diverse portfolio with both high and low risk assets
• Holding Amazon shares long-term with the view of building wealth over 10-plus years
• Monitoring the markets closely

How to research Amazon stock as an investment

Fundamental analysis is one of the best ways to research the price performance of Amazon stock. It analyses financial statements and explores external factors that could impact Amazon’s share price.

Here are some things to consider before investing in Amazon shares:

Operating Profit

Operating profit represents the company’s total earnings from its core operations over a set period. Amazon reports this fundamental quarterly, allowing frequent tracking of the company’s performance against profit targets.

Business model

A business model outlines how a company plans to make a profit, including products, services, anticipated costs, and target markets. Successful companies adapt their business models to meet consumer needs and maintain competitive pricing and sustainable costs.

Since starting as an online bookstore in 1994, Amazon has diversified, focusing on eCommerce, digital streaming, cloud computing, and artificial intelligence (AI).

Net sales growth

Net sales are the sum of a company’s gross sales minus allowances, discounts, and returns. Amazon reports its net sales quarterly, making it easy to compare and calculate year-on-year (YoY) growth. Tracking individual business units' progress is crucial, such as the growth rates of its lower-margin commerce business and higher-margin services unit.

Why buy Amazon shares

Amazon continues to expand into new areas and diversify as a business. Although it operates in several distinct areas, they form part of one ecosystem. It leverages strengths in one part of the business to support another, such as building a store network to complement the increasing online click-and-collect orders or enticing more people to subscribe to Prime with its entertainment services to boost online sales.

This is described as a ‘flywheel effect’, where each part of the business propels growth in another, leading to continuous growth.

While some investors believe Amazon is already successful with limited growth potential, others hold a more optimistic view. The company aims for Amazon Web Services (AWS) to become the top choice for AI computing by offering a range of hardware and software options it continually updates. It has also developed its AI chips.

Despite strong competition from Microsoft in cloud computing, Amazon is the market leader. Chief Executive Officer (CEO) Andy Jassy projects that over the next 10 – 15 years, up to 85% of information technology (IT) spending will be on the cloud. If correct, Amazon’s share price could witness significant gains.

What to do after you buy Amazon shares

After investing in Amazon shares, manage your position using our platform or the IG Invest app and monitor market movements. Financial markets can be volatile, so it is crucial to make informed decisions by staying updated on recent market news and stock performance.