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Market Update

Amazon’s Stock Drop Trips Up Some Well-Known Funds

With Amazon stock down 10% Friday and 40% in 2022, some T. Rowe funds, Polen Growth take it on the chin.

Amazon headquarters.

Amazon.com’s heft (AMZN) has made it a top holding among many mutual funds, especially in the wake of its strong performance during the pandemic. But after coming out with a disappointing earnings outlook this week, Amazon stock has extended already large declines for 2022, hitting hard those funds with a big stake in the company.

Through midday Friday, Amazon was down as much as 10%, setting it on track to become the most significant one-day drop since Oct. 14, 2008. While third-quarter results were broadly mixed, investors were mostly disappointed by the company’s guidance for the fourth quarter.

A line chart showing the price movements of Amazon stock during 2022.

Amazon reported earnings per share of $0.28 that beat mean estimates of $0.17, according to FactSet. Revenue was close to what was expected at $127.10 billion.

At a closer glance, the results showed cost pressures started to accelerate. While Amazon’s third-quarter revenue was up about 15% from a year prior, operating expenses jumped 18%. The company reported a third-quarter operating income of only $2.5 billion—roughly half of what it was a year ago.

North American sales showed a growth rate of 20% from a year ago, but operating expenses grew by 23%, leading to a net loss of $412 million. Meanwhile, Amazon Web Services saw revenue grow 27%, which still fell below expectations. However, AWS operating expenses rose nearly 35% over the last 12 months.

What worried investors the most, however, was the company’s forecast that fourth-quarter sales would be slower than anticipated. The company’s guidance for fourth-quarter sales was between $140 billion to $148 billion, which would mark only a 2% to 8% increase from the fourth quarter of 2021. The new guidance range is far below analyst estimates of $155 billion, according to FactSet, raising alarms that consumer spending is starting to slow, and with it, growth. The latest plunge has the stock down about 40% year-to-date in midday trading on Friday in New York.

Amazon’s stock swings have weighed heavily on the market. As of Sept. 30, the online retailing giant makes up about 2.88% of assets in the Morningstar US Market Index. That led to the company contributing to 1.04% percentage points to the market’s 20.14% overall decline between Jan. 1 and Oct. 27.

Amazon is one of the biggest holdings in the most widely held stock funds. The stock is the third-largest holding in the SPDR S&P 500 ETF (SPY) with a 3.06% weight, and a 2.73% weight in the Vanguard Total Stock Market Index (VTSMX).

For a number of actively managed funds, the stock has been a top holding. Amazon makes up 11.36% of the $45.2 billion T. Rowe Price Growth Stock’s (PRGFX) portfolio. The managers have held the stock since 2006, and from 2014 through 2021 it was the fund’s largest holding.

Amazon also plays a prominent role in the $56.1 billion T. Rowe Price Blue Chip Growth (TRBCX) portfolio, comprising 10.73% of the fund as of Sept. 30. The fund is down 36.6% this year, putting it in the 89th percentile of the large growth category.

Among other large-growth funds, Polen Growth Institutional (POLIX) has the biggest stake in the company. Amazon represented 13.28% of the fund as of Aug. 31. The stock’s poor performance in 2022 has dragged on the fund, which has lost 35.11% this year, putting it in the bottom 20% of large-growth funds.

A table showing active funds with the largest Amazon stock exposure.



Jakir Hossain does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.