BAE Systems’ (LSE: BA) share price lost 8% in two days after the 2 April US tariffs announcement. It has since recovered, which looks entirely justified to me.

It is true that nearly 50% of its global sales are in the US. But it is also the case that the firm has a major presence on the ground in the country. This means the vast bulk of its US sales come from products made there by BAE Systems. The same applies to much of the supply chain for its high-technology, high-security systems.

Indeed, BAE Systems told CityAM: “We have very limited imports into the US.” It added: “As such, we aren’t materially impacted by the evolution of US tariff policy in the same way that some other companies are.”

A long-term boost?

I believe that the most significant long-term effect of the tariffs announcement is not on trade. Instead, I think that its protectionist and isolationist stance underlines that the US’s NATO security allies cannot rely on its support anymore.

In this context, US President Donald Trump said on 7 March that: “If they don’t pay, I’m not going to defend them.” This specifically referred to European NATO members not spending a certain percentage of their gross domestic product on defence.

Trump has repeatedly made it clear in this second presidency that he sees 5% as the minimum acceptable spend. In 2024, European NATO members collectively averaged 2% of their combined GDP on defence, totalling $380bn (£296bn).

In response, a new €800bn (£670bn) pan-European defence fund was announced by the European Commission on 4 March.

Two weeks later, Germany voted to exempt its defence spending from its strict federal debt rules. This will free up unlimited billions of euros for spending by Germany both domestically and for the fund.

I believe BAE Systems will be a huge beneficiary of this spending as it is Europe’s biggest defence contractor and the world’s seventh-largest.

Is the core business in good shape?

A risk to the firm’s earnings is any major malfunction in any of its key products and systems. These would be costly to fix and could damage its reputation.

That said, consensus analysts’ forecasts are that BAE Systems’ earnings will increase 8.3% a year to end-2027.

And it is growth here that drives a company’s share price and dividend in the long run.

These projections look reasonable to me, with its 2024 results showing earnings jump 14% year on year to £3.015bn. Sales rose the same percentage to £28.335bn, while profit increased 4% to £2.685bn.

Crucially to me, its order backlog surged 11% to a record £77.8bn, including several milestone deals. These have continued, with 2 April seeing it awarded a $70m contract for the US Navy’s submarine fleet.

Is there value left in the shares?

I ran a discounted cash flow valuation to pinpoint where the stock’s price should be, centred on future cash flow forecasts for the firm.

This shows BAE Systems is 24% undervalued at its current £16.89 price.

Therefore, the fair value for the stock is £22.22, although market vagaries could move it lower or higher.

Given the changing global security outlook, the firm’s strong earnings projections and its undervaluation, I will buy more of the stock very shortly.

The International Consolidated Airlines Group (LSE: IAG) share price has flown into the heart of the storm unleashed by Donald Trump’s trade tariffs. Despite jumping nearly 5% on Thursday, IAG shares are still down a painful 20% in the past month.

For long-term holders, it’s been a wild ride. The share price doubled last year, but that impressive 12-month return has now slipped to 40%. And with all the uncertainty, investors still risk a rough landing.

IAG got a real lift last year thanks to its hefty exposure to the transatlantic travel market via its British Airways arm. That made it a winner while the US economy was strong. 

But with the States turning inward and risking recession, that strength’s looking more like a liability.

Can this FTSE 100 stock take wing?

On paper, IAG’s 2024 results published on 28 February were stellar. Operating profit jumped 26.7% to €4.44bn, free cash flow hit €3.56bn, and the company returned a chunky €435m in dividends. It announced plans to return up to another €1bn of excess cash to shareholders within 12 months. 

CEO Luis Gallego pointed to “world-class margins” but those results now belong to a calmer, safer world. One that already feels like a distant memory.

I decided to take advantage of last week’s mayhem to buy IAG shares on Thursday (10 April). By the end of the day, I was down 3%. Two days later, I was 5% in the red. That’s happened to me a lot lately.

Do I regret the move? Not wholly. I managed to grab the stock at a 30% discount to its February high of 366p. Plus, I bought in at a rock-bottom P/E ratio of around five. That’s close to where it was before last year’s mighty rebound. That kind of valuation gives me a bit of comfort, and a potential springboard when sentiment improves.

On top of that, IAG’s forecast to yield 3.71% in 2025, rising to 4.43% the year after. Not bad for a company that has only just resumed shareholder payouts. 

Dividends and growth, but bags of risk

If fuel prices keep falling and interest rates edge lower, that could ease cost pressures and help ease the cost of servicing that €6bn debt pile. That said, I’ve definitely signed up for a bumpy ride. Airlines are always first in line when trouble strikes, whether it’s global politics, recession, natural disasters or a presidential tweet.

The 26 analysts offering one-year price targets for IAG have landed on a median forecast of just over 384p. From today’s 240p, that would be a gain of almost 60%. Of the 27 analysts tracking the stock, 16 call it a Strong Buy, four say Buy, six Hold, and just one says Sell. That looks like a pretty strong vote of confidence to me.

If it plays out like that, I’ll be delighted. But plenty of those predictions were made before the recent chaos, and may no longer hold.

For now, all I can do is buckle up. My investment horizon is five, 10 years, or more. One day, I hope to look back with fondness on my IAG trade. But for anyone considering climbing aboard now, my advice is simple: keep the sick bag handy.

Using a Stocks and Shares ISA to save for retirement is a common strategy used by many British investors. Unfortunately, a lot of them only realise they need to start planning for retirement after 40. Some think this is too late but, as the saying goes, “better late than never!“

The benefit of investing with an ISA is the generous tax breaks it provides. Investors can put in up to £20,000 every year with no tax levied on the capital gains. When thinking in terms of 20 years or more, that’s a lot of savings! 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Considerations

Unlike a Cash ISA, it’s important to note that a Stocks and Shares ISA doesn’t guarantee any returns. It’s self-directed, so any returns depend on the assets the account holder picks. Besides the risk of picking bad stocks, economic downturns or recessions can also result in losses. 

However, it does have the potential to achieve far higher returns than the usual 3-4% of a Cash ISA. Many investors achieve upwards of 10% a year by carefully selecting the perfect mix of stocks.

Even if it achieves only the FTSE 100 average return of 6.3%, it would outperform a Cash ISA. It’s not unrealistic to expect an average annual return of 8% from a decent portfolio of growth and dividend shares. 

By investing just £300 a month into such a portfolio, it could grow to £287,209 in 25 years. That amount would do great in a portfolio of high-yield income shares, which could pay out up to £20,000 in dividends every year!

Stocks to pick?

When starting out, it’s best to err on the side of caution and pick a few ‘starter stocks’. Some examples for investors to consider include Marks and Spencer, Tesco and Reckitt Benckiser (LSE: RKT). These are all large, well-established businesses selling brands that are consistently in high demand. This helps them maintain steady revenue streams even when the economy slips and money is tight.

For example, Reckitt has a large portfolio of trusted brands such as Dettol, Nurofen and Durex. Sales of popular products like these ensure it enjoys steady cash flow and can maintain dividend payments.

Since 2010, it’s increased its dividend at a rate of 4.8% a year, up from 115p per share to 202p. It managed this despite posting a loss in 2021 and struggling to meet expectations for the following two years.

However, popular brands and high sales don’t make it immune to challenges. The stock price is down 23% in the past five years, largely due to a lawsuit regarding its Enfamil baby formula. The issue’s now resolved, but such legal challenges are an ever-present risk to retailers of nutrition and medical products.

Fortunately, recovery has been swift, with the share price up 15% in the past year. This is indicative of the company’s defensive qualities, so it’s worth considering for long-term growth and dividends.

Most investors opt for a diversified portfolio of 10-20 stocks, including a mix of growth and income shares from various sectors and regions. This helps protect against industry- or country-specific risks. It can also help to adopt a dividend reinvestment plan (DRIP), thereby compounding returns and optimising growth.

Thanks to strong price gains over the past year, Barclays (LSE:BARC) shares have eked out a solid return for investors during the past decade.

At 270.4p per share, the FTSE 100 bank’s price is 3.7% higher than it was 10 years ago. This means that £10,000 worth of Barclays shares are now worth £10,370. Not great.

But that’s only a small part of the story. When one adds in the 52.65p per share of dividends paid out in that time, Barclays has delivered a total return of 23.9%.

In monetary terms, someone who put £10k in the bank in mid-April 2015 would now be sitting on £12,390.

On the one hand, that might not be considered a bad result given the tough trading landscape for UK banks (more on this later). It’s also always worth remembering that stock prices can go up as well as down over the long term.

31.4% return?

But considering the FTSE All Share index has delivered a total return of 82.2% over the same period, suddenly Barclays’ return doesn’t look all that robust.

Can the bank’s share price perform more strongly from this point on? And should investors consider buying Barclays shares?

Unfortunately forecasts for Barclays’ share price only stretch out to the next 12 months. But they do suggest strong gains over that period.

Some 17 analysts currently have ratings on the FTSE bank. And as is the case with most equities, their share price targets for the next year differ considerably at times.

The most optimistic City broker has slapped a 410p per share price target on the high street bank. That represents a 51.6% premium from 68.6p today. At the other end of the scale, one especially bearish analyst thinks the bank will hit 230p in a year, down 14.9% from current levels.

But on balance, price forecasts among the analyst are pretty upbeat: the average 12-month target price is 346.1p, up 28% from today’s 270.4p.

With a dividend of 9.16p per share predicted for 2025 too, Barclays could deliver a total return of 31.4% over the next year if it can meet that average price goal.

Are the shares a buy to consider?

With a price-to-earnings (P/E) ratio of 6.4 times, Barclays is currently the FTSE 100’s cheapest banking share based on expected profits. This in theory could provide the platform for industry-beating price gains over the next year.

The company also has a large investment bank which, if financial markets steadily recover, could help the business deliver stronger profits than its high street rivals.

Yet Barclays also faces substantial challenges to hitting those share price forecasts. Competition is fierce, and interest rates are coming down across its UK and US markets. Against this backdrop, I’m expecting its net interest margin to remain under severe pressure (this was just 3.29% in 2024).

Those competitive pressures, added to tough economic conditions in Britain and the possibility of a US recession, also means loan growth may continue to be underwhelming. There’s also the possibility of colossal fines if Barclays is found guilty by the UK regulator of mis-selling car loans (it’s already set aside £90m to cover such an eventuality).

Although they’re cheap, I think investors should consider steering clear of risky Barclays shares right now.

The past two weeks have been hair-raising for global investors. Global share prices plunged after President Trump revealed the largest tariffs on US imports since 1930. The UK FTSE 100 and US S&P 500 both dived, and the tech-heavy Nasdaq Composite index was the hardest hit. With asset prices slumping, maybe it’s finally time for me to buy more GSK (LSE: GSK) shares?

GSK takes a tumble

At its 52-week peak on 16 May 2024, the GSK share price hit 1,823.5p, but it’s been mostly downhill ever since. Last week, as stock markets crashed, GSK shares collapsed to 1,242.5p on Wednesday 9 April. This took this FTSE 100 stock back to levels last seen in early 2021, during the Covid-19 crisis.

Also, GSK shares have been limping along for years. They’ve lost 12.8% of their value in a month, while declining 11.8% over six months. Over one year, they are down almost a fifth (-19.8%), while their five-year return is -21.5% (all returns exclude cash dividends).

GSK was our big deal

Until four years ago, GSK stock was my family’s biggest shareholding. By spring 2021, we’d been shareholders of this UK biopharma giant for over three decades. This happened because my wife joined this Footsie firm in late 1989.

As an employee of a global multinational, my wife took maximum advantage of all share schemes open to GSK employees. These included Sharesave (Save As You Earn/SAYE/Savings-Related Share Option Scheme), Share Reward (Share Incentive Plan, ‘buy one, get one free’), Company Share Option Plans (CSOPs), Long-Term Incentive Plans (LTIPs), and share-based performance bonuses.

What amazes me is that my better half never bought any GSK shares via the London Stock Exchange. Instead, her shares were either free, cheaper than half-price, or bought at steep discounts to market prices. In short, every part of this shareholding was bought ‘on the cheap’.

Sell block

After more than three decades with GSK, my wife left the group in early 2021. This triggered a generous benefits package, including enhanced redundancy and upgraded immediate retirement. But what proved highly attractive was her employer’s offer to pay all taxes and costs on her share sales on departure.

When UK shareholders sell stocks at a profit, capital gains tax (CGT) may be payable. The higher CGT rate has been as much as 40% in previous decades, but was 20% for higher-rate taxpayers in the 2021-22 tax year. (This rate rose to 24% from the 2024-25 tax year.)

Having owned many of her shares for decades, selling free of CGT and dealing costs was a lucrative offer for my wife. Hence, she liquidated all but a tiny percentage of her GSK holding, dramatically boosting her net gains. Today, we both own small legacy stakes in GSK, but nothing like the lump we once had.

GSK looks undervalued to me

With the GSK share price at 1,317.5p today, the group is valued at £54.3bn. This stock trades on 21.2 times earnings and offers a market-beating dividend yield of 4.6% a year. These fundamentals look undemanding to me, so we shall keep our rump holding in GSK. Though we were absolutely right to sell big in 2021, I’m seriously thinking about buying more GSK shares at current prices, cash permitting!

President Trump’s sweeping tariffs have significantly disrupted global markets in 2025, with his universal 10% baseline and sector-specific duties as high as 25% on steel and aluminium sending shock waves through economies worldwide. UK stocks have dived, with the FTSE 100 entering correction territory.

While I’m extremely cautious, there’s some evidence the correction appears increasingly overdone. While UK exports to the US represent 2.2% of our GDP, our post-Brexit regulatory flexibility positions the UK uniquely compared to EU counterparts. What’s more, analysis from Aston University suggests that UK exports to the US could surge by 17.5% through trade diversion effects if the EU and US fail to hammer out a deal.

What’s more, the US exceptionalism narrative is weakening as inflation concerns mount. With US tariffs potentially adding 2.2 percentage points to American inflation, capital will likely seek alternative havens. Meanwhile, the 30% GDP gap between Europe and the US may begin to narrow once again. I’d also suggest that Trump’s constantly changing tariffs have worsened investor sentiment. I’m finding it hard to add to my US holdings.

Here’s what I’m buying

Despite the possibility of a rally, I moved to a largely cash position early in the Trump presidency. However, I’ve been slow to initiate positions in UK stocks. I think it’s best to be extremely cautious. The one than I have bought is Jet2 (LSE:JET2).

I think Jet2 should be getting more attention for its strong financial position. It currently boasts a net cash reserve of £2.3bn and a market cap of £2.7bn, making its enterprise value just £400m. That’s equivalent to just one year of forecasted net income. But it’s not just me. Institutional analysts highlight its undervaluation, with an average price target 66% higher than current levels.

The company plans to invest £5.7bn by 2031 to modernise its fleet, transitioning to a predominantly Airbus configuration, which could enhance operational efficiency and reduce costs in the long term.

However, risks remain. Jet2’s older fleet (average age 13.9 years) increases maintenance costs until upgrades are complete, and the autumn Budget is certainly going to push up costs. While fuel price volatility — fuel accounts for 25%-30% of operating costs and sometimes more — could pressure margins, fuel has got cheaper since 2 April.

My bullishness simply comes down the valuation. Jet2 essentially has a net cash adjusted price-to-earnings ratio of one. That’s so many times cheaper than its peers.

Here’s what I may buy (more of)

Scottish Mortgage Investment Trust is a business I always have my eye on. It invests in tech-oriented companies like Nvidia and SpaceX, and due to gearing — borrowing to invest — it can be even more volatile than the growth companies it invests in. Nonetheless, the long-term performance has been strong.

Then there’s AstraZeneca. The stock has fallen on concerns about Trump’s pharma tariffs. But I just don’t think the tariffs will end up being that significant. AstraZeneca is a big player in oncology. Making cancer drugs more expensive for Americans just doesn’t make sense, while making these companies manufacture in the US could take years.

I own both these stocks, but may look to buy more.

The FTSE 100‘s down 2.5% since the beginning of the year. This means £10,000 invested in an index tracker then would be worth £9,750 now. It’s clearly not a great return, but the index has demonstrated considerable volatility in recent months. Unsurprisingly, a lot of this volatility has been created by the new US administration.

What’s been going on?

The FTSE 100 has reached significant highs and lows. The index hit record highs, peaking at 8,908.82 points on 3 March. This rally was fuelled by improving macroeconomic conditions, including moderating inflation and expectations of interest rate cuts from the Bank of England.

Strong corporate earnings across sectors such as healthcare and basic resources also improved investor confidence. Additionally, geopolitical developments led to increased European defence commitments, with governments announcing to lift budgets amid tensions between Russia and Ukraine. This boosted defence stocks and contributed to the FTSE 100 reaching new highs.

However, the optimism was short-lived. Global markets were rattled by US President Donald Trump’s aggressive tariff policies. In April, Trump imposed sweeping tariffs on imports and escalated a trade war with China and other nations. China retaliated with its own tariffs, intensifying fears of a global recession.

The FTSE 100 nosedived. Sectors heavily exposed to international trade, such as banking and mining, suffered significant losses. While a temporary rollback of tariffs provided brief relief, uncertainty surrounding trade policy continues to weigh on market sentiment.

Buying the index or individual stocks

The FTSE 100 isn’t big on growth, but dividends are generally elevated. And while average total return for the blue-chip index over the long run significantly lags the S&P 500, there’s a broad consensus that UK and European markets have been overlooked in recent years. Coupled with US market turmoil, there’s a chance markets could outperform on this side on the pond.

However, my preference is for individual stocks. It can be harder to built a diversified portfolio this way, but it can be achieved with time. One stock I’m keeping an eye on is the index’s most valuable company, AstraZeneca (LSE:AZN).

The stock plummeted in recent weeks, amid concerns about US tariffs on pharmaceuticals. I think the first thing to note here is that placing tariffs on pharmaceuticals could push up the cost of vital medicines for US citizens. But Trump wants pharma and biotech companies to invest in US production. It’s quite a risky gamble.

As it stands, AstraZeneca generates 42% of its sales in the US, but only manufacturers 22% of its products there. That could be an issue for Trump, but I struggle to see how tariffs can successfully be implemented without causing more damage to the US consumer. What’s more, reshoring pharma production would take years.

My hunch is that the tariffs will eventually be limited on pharma companies. And this is what makes AstraZeneca an interesting prospect at 21 times forward earnings. This figure is set to drop to 15 times by 2027, based on current projections. However for now, I won’t add to my AstraZeneca holdings. But I’ll keep a very close eye on developments.

As a long-term investor, I like buying shares in good businesses at fair prices. Also, my investing style nowadays favours value shares and passive income. Thus, when share prices plunge — as they did during the recent market meltdown — I see these falls as opportunities to buy at a discount.

Hence, I’m often drawn to cheap shares offering market-beating dividend yields to patient shareholders. As my family doesn’t need this income right now, we reinvest our dividends by buying more shares. Over time, this increases our corporate ownership and boosts our total long-term returns.

Passive income from dividends

Though share dividends are my favourite form of passive income, they’re no sure-fire route to riches. Indeed, returns from value/income investing have lagged behind those from growth investing for most of the last 15 years. Also, these three problems can cause problems:

1. Future dividends aren’t guaranteed, so they can be cut or cancelled at short notice. For example, during 2020-21’s Covid-19 crisis, dozens of UK companies slashed their payouts to preserve cash.

2. After paying out dividends, companies have less cash at hand. Therefore, paying out excessive dividends can weaken companies over time.

3. Super-high dividend yields, say, 10%+ a year, can warn of future problems. History has taught me that double-digit cash yields rarely last. Either share prices rise, or dividends get cut, dragging down yields.

Three dividend dynamos

These three shares offer the highest passive income from FTSE 100 stocks:

Company	Business	Share price	Market value	Dividend yield
Phoenix Group Holdings	Asset management	559.5p	£5.6bn	9.7%
M&G (LSE:MNG)	Asset management	186.75p	£4.5bn	10.8%
Legal & General Group	Asset management	237p	£13.9bn	9.0%

Note that these Footsie firms are all asset managers — they manage other people’s money and financial assets. This was a pretty good business to be in since the global financial crisis of 2007-09 ended. However, with fund fees under relentless pressure from passive index-tracking funds, profit margins aren’t what they used to be.

Overall, these three shares deliver an average dividend yield of 9.8% a year. Therefore, a mini-portfolio of equally weighted holdings in all three stocks would generate passive income of £1,961 annually. Furthermore, this cash stream would be tax-free inside a Stocks and Shares ISA.

I like M&G

For the record, my family portfolio includes all three dividend shares listed above. My wife and I bought these stocks for their bumper dividend yields, which we reinvest for growth.

In particular, I like the look of M&G as a long-term producer of passive income. M&G was founded in 1931 and launched the UK’s first unit trust that same year. The current share of 186.75p translates into a huge cash yield of 10.8% a year. But this yield has leapt due to recent falls in the M&G share price. This is down 13.4% over one month and 7.2% in a year, but is ahead 43.4% over five years (excluding dividends).

Then again, what if things turn sour again for financial markets, as happened recently? With £312bn of assets under management, M&G’s profits and cash flow could get slammed if stock and bond prices plunge further. Even so, I note that its yearly dividend has risen from 15.77p a share for 2019 to 20.1p for 2024. In short, this passive income looks sound to me!

QinetiQ Group (LSE: QQ.) shocked FTSE 250 investors with a profit warning on 17 March. But is it set to bounce back?

In a trading update, the defence and security specialist lowered its full-year organic revenue growth forecast for 2025 to about 2%. At Q3 time in January, it had told us to expect “high single digit organic revenue growth“.

It sweetened the revenue downgrade a bit by announcing “an extension to our share buyback programme of up to £200m over the next two years“.

Up and down

The QinetiQ share price fell back to… about where it was before it rose in the week or two before the update. Despite a bit of volatility, it’s still up 10% over the past 12 months.

The board clearly thinks its own shares are worth buying now as a good use of surplus cash. I think long-term investors might profit from considering the same.

Tough US business

The company expects an impairment charge of around £140m this year “due to the market backdrop and operational performance in the US“. And there should be one-off charges adding up to around £35m-£40m, again due to US operations.

It all leads analysts to predict a loss per share for the current year. But beyond this one-off year, we could be looking at a price-to-earnings (P/E) ratio of 14.5 in 2026 and falling.

There are clear dangers. But those considering buying for long-term growth might see the share price dip as a possible opportunity.

More of the same?

I’m sticking with the same general sector for my second pick, Chemring Group (LSE: CHG). The company, which specialises in decoy technology to protect against missiles, hasn’t really been upset by trade war threats so far.

The shares dipped on the back of FY results in December. That’s even though we saw an 8% rise in revenue and a 13% boost for the dividend. However, underlying earnings per share (EPS) fell 4%.

Net debt jumped to £52.8m from £14.4m a year prior. Still, a year is a short time frame for such a long-term business. And Chemring still reported net debt to underlying EBITDA of only 0.56 times, which seems fine.

The share price started 2025 weakly. But since February, it has turned back up again. We’re looking at a 17% year-to-date gain in 2025.

Uncertain times

Chemring faces much of the same uncertainty and risk as QinetiQ. But it also shares the same attraction for me — decent long-term growth prospects.

In this case, broker forecasts show EPS climbing 75% between 2024 and 2027. That could be enough to push the P/E down under 14 by then. And it’s without the short-term hurdles that QinetiQ faces this year.

At results time, CEO Michael Ord said the “outlook for global defence markets is increasingly robust, with strong growth expected over the next decade“. And he spoke of an “ambition to increase the group’s annual revenue to c.£1bn by 2030“.

It’s got to be a FTSE 250 growth stock worth considering, surely.

The S&P 500 took a pounding at the beginning of April, falling 11% in the space of a few days. While the benchmark US index has since bounced back by 7.6%, many stocks remain well off their recent highs.

Amazon (NASDAQ: AMZN) is one such example. Its share price is still 23% lower than it was near the start of February.

Here, I’ll explain why I think the stock may well be on sale for long-term investors.

10 years of incredible growth

A decade ago, Amazon was already a juggernaut. It posted revenue of $107bn in 2015, with its Amazon Web Services (AWS) cloud business nearing $10bn in annual sales.

The market cap was above $300bn, which would have made it the largest FTSE 100 firm — and still would by some distance!

Investors back then might have mistakenly assumed that the e-commerce giant’s high-growth days were coming to an end. However, fast forward to today, Amazon’s market cap is just under $2trn!

Last year, its revenue came in at $638bn, with AWS growing 19% year on year and contributing over $100bn. Incredibly, Amazon’s operating profit surged 86%, reaching $68.6bn.

Over the past 10 years, the share price has risen 885%!

The innovation goes on

The lesson here is that just because Amazon is already a juggernaut, it doesn’t mean it can’t keep growing even larger over the next five to 10 years. Indeed, digesting CEO Andy Jassy’s recent annual letter to shareholders, this looks extremely likely to me.

The company plans to invest as much as $100bn this year, much of that building out artificial intelligence (AI) capabilities. Services like SageMaker, Bedrock, and Nova already help customers build, deploy, and scale AI applications faster and more affordably.

Across the firm, there are more than 1,000 generative AI applications being built. And the new Alexa+ is highly personalised, with contextual memory. It has advanced agentic capabilities, meaning it can better navigate the internet in a self-directed way to complete more tasks on customers’ behalf. 

We continue to believe AI is a once-in-a-lifetime reinvention of everything we know, the demand is unlike anything we’ve seen before.

Amazon CEO Andy Jassy

Amazon is also committed to speeding up e-commerce deliveries. In my experience, this is an area where there is already no competition. As a Prime member, I often order something in the morning and it is dispatched later that same day. Through its Prime Air drone delivery service though, it intends to get items to customers inside an hour.

Elsewhere, its satellite network (Project Kuiper) is targeting the 400m-500m households around the world that don’t have access to broadband. This service eventually aims to compete directly with SpaceX’s Starlink.

Attractive valuation

Now, one risk here is tariffs. Many third-party sellers on Amazon are based in China and many US-based ones source products from Chinese manufacturers. If sellers start dramatically increasing prices, this could impact growth in Amazon’s core retail business.

Meanwhile, a US recession would exacerbate these risks, while also being problematic for AWS. However, the potential for future growth through AWS and digital advertising looks very strong.

Based on 2026 forecasts, the stock is trading at 23.8 times forward earnings. It has rarely been so cheap. I think the rewards far outweigh the risks for long-term investors.