Is Amazon a Buy, Sell, or Hold in 2025?

E-commerce pioneer Amazon (AMZN -0.60%) belongs in the small handful of stocks I’d consider buying at any time. At the same time, master investors like Warren Buffett insist that even great companies should be bought only at reasonable prices.

As 2024 winds down, Amazon shares have gained more than 46% this year. The stock trades just 6% below its all-time high, which was set two weeks ago. Is Amazon still a buy at these soaring share prices, or should you let the stock cool down before taking another look in 2025?

Is Amazon stock overpriced?

Stop me if you’ve heard this before: Amazon’s stock looks expensive.

The online retailer and cloud computing innovator has indeed reached a lofty perch on Wall Street. It’s one of the vaunted “Magnificent Seven” stocks, with a $2.27 trillion market cap. Shares are changing hands at 47 times earnings (P/E) and 53 times free cash flow (P/FCF). There’s just no other way to look at it — Amazon’s stock isn’t cheap right now.

This market-beating stock never looks cheap

Then again, this stock never seems like a bargain. It doesn’t really matter what metrics you apply to the chart — Amazon shares feel expensive most of the time.

The chunky price-to-earnings ratio is about the lowest it’s been in the last 15 years:

AMZN PE Ratio data by YCharts

The cash flow ratio is also low from a historical perspective. In this view, Amazon stock felt affordable after the subprime meltdown of 2008-2009 and again as the cloud computing segment turned profitable in the mid-2010s, but Amazon also depleted its cash profits in 2013 and 2021. Data center equipment, world-class shipping services, and upgraded headquarters can be expensive.

In the end, Amazon’s average P/FCF over the last decade and a half stands at 108:

AMZN Price to Free Cash Flow data by YCharts

And I really don’t have to remind you that the stock delivered exceptional returns anyway, right? The S&P 500 (^GSPC -0.38%) rose 424% in the 15-year period I’ve highlighted, but Amazon raced ahead with a 3,070% gain:

AMZN data by YCharts

“Perfect timing” is a real thing. Nobody knows how to achieve it.

I agree that it makes a difference when you nail the perfect time to buy any particular stock. If you grabbed Amazon shares on the right day in June 2009 instead of six months later, you’d have a 5,550% return in your pocket instead. That’s a much better result.

But nobody knows how to pinpoint those perfect buy-in dates. Warren Buffett is the first to admit that he can’t see “what the stock market is going to do in the next six months, or the next year, or the next two.”

That uncertainty applies to the market as a whole and to each individual stock. The best any investor can do is pick up shares of great companies when it seems to make sense, then let the underlying business deliver profitable growth and shareholder returns in the long run. That’s good enough for billionaires like Buffett, and more than fine for me. You should consider a similar approach, too.

Yes, you can buy Amazon today

Maybe this isn’t the best time ever to buy Amazon stock. But it’s also not a bad time.

Looking ahead, Amazon should benefit from a stronger economy, the continued artificial intelligence (AI) boom, and its recently launched drone delivery system. I’m talking about a world-class innovator with a flexible business plan, and the stock may never seem affordable but still provides winning returns over the years.

So you shouldn’t back up the truck, bet the farm, or put your whole nest egg into Amazon stock today. However, you might want to start a modest Amazon position if you haven’t yet, using price-mitigating techniques such as buying in thirds or running an automated dollar-cost averaging plan.

The road ahead may be bumpy, but you don’t want to watch from the sidelines as Amazon keeps treating its shareholders to market-beating returns in the long haul.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.