Etsy is out of the S&P 500. Here’s 1 great stock to buy.

Investors have moved on from the former growth stock Etsy (ETSY 2.49%). The niche e-commerce platform has not been able to maintain its growth since the pandemic era, and although it has become more popular, it is struggling to grow.

It was included in S&P 500 index for the first time in 2020, almost in the middle of the period of greatest growth, but was recently removed along with American Airlines and Bio-Rad Laboratories.

Looking for a great alternative to Etsy? Consider Amazon (AMZN -1.67%) instead.

Should Etsy exit the portfolio?

The powers that be at the S&P 500 have written off Etsy because it is too small for the index, which focuses on large-cap stocks. It was placed instead in the S&P SmallCap 600. Etsy was on fire when it originally joined the index, but has lost 56% of its market cap since then and has a market cap of $6.3 billion right now. The announcement didn’t have much of an impact on Etsy shares, which are down 33% year to date.

It’s not necessarily a vote of no confidence in Etsy; that’s just how this index works. The vote of no confidence comes from the market. Etsy has struggled to grow its business in the wake of the pandemic’s windfall, and various initiatives have failed to reignite the momentum.

Etsy could still come back. Economic headwinds will likely be a factor in its late performance, and lower interest rates should boost sales. Revenues are still growing, but barring another global pandemic, they should continue at a steady pace. Etsy is highly profitable, has a niche e-commerce platform that serves a loyal community, and the stock is cheap, trading at a forward P/E ratio of 11.

However, if you’re looking for a high-octane e-commerce stock to supercharge your portfolio, look no further than Amazon.

No match for the king of e-commerce

Amazon likes to have its finger in a lot of pies, and if there are challenges to its platform, it takes them on. So when Etsy became a popular marketplace for handmade items, Amazon launched a competing platform called Amazon Handmade.

To Etsy’s credit, Amazon hasn’t taken it out of the game. That speaks to the power of Etsy.

But also talk to Amazon. He can step into any area where he sees an opportunity and become an instant player. If handmade goods are doing well, why should Amazon lose?

This is kind of a guiding principle for Amazon. Wherever there is an opportunity that fits into its platform, Amazon will pursue it. That’s how it got into cloud computing, which has become one of its most important segments; he had the technical capabilities and experience to develop it into a very profitable business today. And it’s taking this a step further with its generative artificial intelligence (AI) business, which is targeting the Amazon Web Services (AWS) cloud computing segment.

Including Etsy’s incredible initial jump, it’s down 3% over the past five years, while Amazon’s stock is up 122%.

ETSY data by YCharts

Opportunities in e-commerce and more

Ultimately, buying Amazon stock is a vote of confidence in much more than its e-commerce platform, although that is one reason to buy it. As he experienced firsthand with Etsy, he doesn’t miss an opportunity to innovate and improve wherever he can.

One of the latest e-commerce products is called Buy With Prime, which gives third-party vendors the ability to use Amazon checkout on their direct-to-consumer sites. This is a win-win, as third-party vendors can use Amazon’s network to facilitate fast payments and deliveries, while Amazon gets a cut of the sale.

It also provides advertising opportunities for third-party vendors to drive shoppers to their sites, another way for Amazon to take a bigger share of the sale. He recently made his first deal PayPal to present it as a payment option for Buy with Prime.

E-commerce continues to grow as a percentage of retail sales, reaching 19.7% last year, according to Statista. It is expected to reach 20.7% in 2024 and continue to gain share through 2027. These organic growth opportunities will probably benefit Amazon more than any other company.

Amazon has a lot of growth prospects in e-commerce, cloud computing, streaming and more, and is a great choice for almost any investor.