Shares of Amazon.com tumbled more than 12% on Friday after the company reported slower growth in online sales during the second quarter. The e-commerce giant also noted that consumers are increasingly opting for cheaper alternatives, reflecting a broader trend in value-conscious consumer behavior. This shift comes ahead of Walmart’s upcoming quarterly results, with Amazon CEO Andy Jassy acknowledging that customers were “trading down on price when they could.”

Amazon’s shares were trading around $165, positioning it as one of the largest drags on the Nasdaq. If the losses persist, the company stands to lose approximately $188 billion in market value. MoffettNathanson analyst Michael Morton pointed out that “consumer spending trends facing retail peers appear to have finally caught up with Amazon’s P&L.”

In the second quarter, Amazon’s online store sales increased by 5% to $55.4 billion, a slowdown from the 7% growth seen in the first quarter. The company faces heightened competition from Temu and Shein, which offer a wide range of products at low prices, directly from China. Art Hogan, chief market strategist at B. Riley Wealth, highlighted that Amazon is challenged by “a consumer that continues to search out lower prices and competition largely from discount sites such as Temu and Shein.”

The broader market also suffered, with U.S. stocks plunging for the second consecutive session. The Nasdaq confirmed it had entered correction territory following a soft jobs report that fueled recession fears. Meanwhile, United Parcel Service (UPS), Amazon’s largest customer, is increasing fees to offset revenue declines attributed to the growing market share of low-margin deliveries from companies like Temu and Shein.

Despite the challenges in retail, Amazon’s quarterly profit and cloud computing sales exceeded analysts’ expectations. Amazon Web Services (AWS), the company’s cloud division, saw a 19% revenue increase to $26.3 billion, surpassing expectations. This performance came shortly after Microsoft’s cloud division Azure fell short of market estimates, raising concerns about Big Tech’s substantial investment in artificial intelligence.

Amazon is working to catch up with competitors like Microsoft and Google in developing large language models, capable of rapidly responding to complex queries. The company’s forward price-to-earnings ratio for the next 12 months stands at 33.92, compared to Alphabet’s 20.46 and Microsoft’s 30.88, according to LSEG data.

(Adapted from MarketScreener.com)