Amazon shares came under pressure on Tuesday as investors weighed a new antitrust lawsuit from US regulators against the company’s growing advertising business, while broader market weakness added to the selling pressure.

Amazon AMZN stock was down nearly 1.8% in trading, extending Monday’s decline after the Federal Trade Commission and 22 US states sued the e-commerce giant over allegations that it manipulated the prices advertisers paid to promote products on its marketplace.

The broader market was also under pressure, with inflation concerns and higher oil prices pushing bond yields higher and raising questions about whether the Federal Reserve could maintain a restrictive policy stance later this month.

S&P 500 and Dow Jones were down about 0.6% and 0.4% respectively, while the Nasdaq Composite fell more than 1%.

FTC accuses Amazon of inflating advertising costs

The FTC alleges Amazon illegally raised prices for advertisers by secretly increasing the minimum amount required to place advertisements promoting products on its marketplace.

According to the agency, Amazon systematically inflated advertising auction prices without advertisers’ knowledge, potentially costing them $20 billion or more.

“Amazon has been able to generate billions of dollars in profits — at the expense of its auction advertising customers,” the FTC said in its lawsuit filed in federal court in the Western District of Washington.

The agency said advertisers suffered billions of dollars in losses because of higher advertising prices.

The states involved in the case could seek civil penalties and attempt to recover some of the alleged damages.

A US official said the FTC would seek “tens of billions” in damages, although the final amount has yet to be determined.

The case could therefore become another significant financial and regulatory liability for Amazon if the allegations are ultimately upheld.

Amazon rejects allegations

Amazon has pushed back strongly against the accusations, arguing that its advertising system is designed to improve the relevance of advertisements shown to shoppers.

In a blog post Monday, the company said the average cost per click for advertisers remained flat between 2019 and 2024, while sales generated from those clicks increased.

“Amazon’s approach to pricing contradicts any suggestion of consumer harm,” the company said.

“We provide customers the lowest prices every day across the widest selection of products, and work to ensure our retail and grocery prices meet or beat those offered by other retailers.”

The dispute comes as advertising has become an increasingly important contributor to Amazon’s financial performance.

The company’s advertising operation has grown into a high-margin business and is now the third-largest digital advertising platform globally, behind Alphabet and Meta Platforms.

Amazon’s advertising revenue increased 26% in the latest quarter to $19.8 billion, highlighting why the business has become increasingly important to investors.

Citi says action to create near-term pressure on AMZN

Despite the lawsuit, analysts have largely maintained a constructive view of Amazon’s underlying business.

Citi said the FTC action could create near-term pressure on Amazon shares, but argued that the company’s advertising business remains strong, Stockwits said.

It saw the pullback as a buying opportunity.

The firm pointed to continued advertiser spending on Amazon, suggesting marketers are increasingly willing to allocate budgets to the platform because of the sales returns generated by its advertising products.

Citi continues to rate Amazon as a ‘Buy’ and has a $350 price target, implying more than 37% upside from Monday’s closing price.

The firm also highlighted improving artificial-intelligence demand at AWS, arguing that accelerating AI-related spending could support cloud growth and strengthen Amazon’s broader earnings outlook.

AWS AI spending remains a major catalyst

Amazon’s cloud business remains one of the biggest reasons investors continue to look beyond the regulatory risks.

Citizens recently maintained its Market Outperform rating and $315 price target for Amazon, pointing to continued strength in AWS infrastructure spending.

AWS has committed to purchasing 2 million additional Nvidia GPUs across 2027 and 2028, on top of more than 1 million units previously announced.

The cloud division also plans to deploy its Vera CPUs as part of its infrastructure expansion.

Citizens said the commitments demonstrate sustained demand for Nvidia hardware even as AWS continues developing its own custom silicon.

That combination of external AI chips and internally developed infrastructure could allow Amazon to expand its capacity to serve customers racing to build AI applications.

Agentic AI could provide another growth avenue

Amazon is also positioning artificial intelligence as a potential growth driver across its retail business.

Evercore ISI recently raised its Amazon price target to $355 following a positive US Online Retail survey, according to Investing.com.

The survey found that 57% of users of Alexa AI had purchased products they were previously unaware of, according to the firm.

Evercore sees the result as an early indication of the potential for agentic AI to influence Amazon’s retail business.

The technology could eventually allow Amazon’s AI systems to play a more active role in helping customers discover products, make purchasing decisions and complete transactions.

For investors, that provides another potential growth avenue beyond AWS and digital advertising.

Amazon now faces its third major FTC case, adding to a growing list of regulatory challenges surrounding the company.

Last September, Amazon agreed to pay $2.5 billion to settle allegations that it deceptively enrolled consumers into Amazon Prime and made cancellations unnecessarily difficult.

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