Key Points

Amazon's retailing segments appear to earn most of their operating income from outside of retailing. AWS, an AI-driven services business, drives the majority of its operating income. A favorable valuation could serve as an added incentive to buy Amazon stock. These 10 stocks could mint the next wave of millionaires ›

When looking for stocks less exposed to tariffs, investors might be surprised to find Amazon (NASDAQ: AMZN)on the list.

Admittedly, that might appear counterintuitive, given that online stores remain its largest revenue source. Since China and other developing countries are often favored locations for manufacturing, one might wonder how it does not feel the impact of tariffs.

Despite that factor, Amazon's business model hedges well against the impact of tariffs. One will likely find a strong buy case for the artificial intelligence (AI) stock regardless of tariff levels, and here's why.Image source: Amazon.

Amazon's tariff-resistant business model

Indeed, most customers and investors know Amazon best for its e-retailing arm. Still, while it is Amazon's largest revenue source, Amazon only publishes operating income numbers for its e-commerce-oriented North America and international segments. Those segments, which use AI to drive efficiencies, include subscriptions, third-party seller services, and digital advertising that grow net sales quicker than the online stores.

Even though its operating income is positive, the way Amazon reports its numbers implies that the online stores may lose money. However, even if it operates at a loss, the e-commerce website supports faster-growing ventures, possibly meaning it serves as a loss leader for Amazon regardless of tariff levels.

That doesn't make Amazon tariff-proof. Many of its third-party sellers likely depend on low-cost goods from abroad, meaning tariffs could slow the growth in that part of the business.

Still, tariffs will likely not affect the subscriptions or advertising enterprises as profoundly. Also, the part of Amazon that drives most of its operating income, the AI-driven Amazon Web Services (AWS), is a service-based business, meaning it probably sidesteps the effects of tariffs completely.

Amazon's financial state

It may take time to figure out what little effect the tariffs might have on Amazon. The Trump administration announced "Liberation Day" on April 2, right after the company's first quarter ended. Even though some tariff announcements occurred in Q1, the levies likely did not have a material impact on the company's financials.

Story Continues

Amid those conditions, the company's $156 billion in net sales rose 9% compared to year-ago levels. Also, net income surged 64% higher to $17 billion as the company kept operating expense growth in check. A nearly $3 billion equity adjustment on the value of its available-for-sale debt securities also contributed to the higher profits.

Moreover, Amazon forecasts net sales growth between 7% and 11% in Q2. That also indicates that tariffs will not materially affect its financial performance.

What's more, it may help explain why Amazon stock has begun to recover from the sell-off in stocks earlier this year. That lifted its price-to-earnings (P/E) ratio off multiyear lows. At 33, the earnings multiple is slightly higher than the S&P 500 average of 28. However, it's substantially lower than Amazon's five-year average P/E ratio of 82, making it arguably cheap for a top AI stock.

Indeed, considering its $2.2 trillion market cap, some of the multiple compression could stem from Amazon maturing. Nonetheless, with the company trading at such a discount, one could justify adding shares at current levels.

Amazon remains a buy

Despite Amazon's role in the retail sector, its stock will likely remain a buy no matter what happens with tariffs. Amazon's public image is mainly tied to retailing, its largest source of revenue. Still, from a financial standpoint, retailing is more like a loss leader, bolstering faster-growing enterprises with less tariff exposure.

In the meantime, AWS, a software business not tied to its retailing operations, continues to generate most of its operating income. That success reinforces the point that tariffs have little effect on the most successful parts of Amazon's business. When also accounting for Amazon's comparatively low valuation, such levies are not a reason to turn away from Amazon stock.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

1 Artificial Intelligence (AI) Stock to Buy No Matter What Happens With Tariffs was originally published by The Motley Fool

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