Analysts are overwhelmingly positive about the future prospects of Amazon, which emerged as one of the standout performers this earnings season with its impressive financial results released in early August. However, experts are cautioning that the company may face challenges in sustaining its recent gains in the near term.
Driven by a resurgence in profit and revenue growth, Amazon’s stock has climbed 5% this month, while other tech giants such as Apple, Microsoft Corp, Google-owner Alphabet, and chip maker Nvidia have experienced declines. Despite adding nearly $600 billion (€550 billion) in market value this year, some observers believe that Amazon needs a new catalyst to continue its upward trajectory, especially as the broader tech sector rally shows signs of slowing down.
Rick Bensignor, President of Bensignor Investment Strategies, highlights the difficulty of finding a fresh spark for Amazon amidst the current market conditions. He states, “You need a real catalyst for Amazon to break out of its range, and that’s going to be difficult to come by since we just got earnings and tech seems to be losing momentum in general. With Amazon trading at the highest it’s been in a year, this is not the time or the place to be adding.”
After lagging behind other mega-cap companies for the past couple of years, Amazon’s shares experienced a breakout in the second quarter of this year. The stock has continued to rise, driven by the company’s cost-cutting measures and signs of stabilization in its cloud business. As a result, Amazon’s stock is now up 67% in 2023, almost double the gain of Microsoft.
Mike Loukas, CEO of TrueMark Investments, believes that the market is starting to recognize the robustness of Amazon’s business, which will create significant momentum going forward. He states, “The market is starting to wake up to how there’s far more robustness here than has been recognized, which will create significant momentum.”
Although Amazon’s stock still trades about 25% below its record high from mid-2021, investors view breaking above the 52-week high as a bullish development. Hedge funds demonstrated their confidence in the company during the second quarter, with 172 institutional investors increasing their positions in Amazon, compared to 132 reducing their stakes, according to data compiled by Bloomberg. Prominent firms like Dan Loeb’s Third Point increased their bets on the stock, while Stanley Druckenmiller’s Duquesne Family Office reduced its position.
Bulls in the market point to Amazon’s expected double-digit earnings growth in the coming years, with consensus estimates for the company’s 2024 net earnings rising by more than 20% over the past six months. Additionally, revenue is projected to accelerate, although it experienced its slowest growth as a public company last year.
In conclusion, while Amazon has enjoyed significant success in recent months, experts are urging caution about its future prospects. The company may need a new catalyst to sustain its momentum, particularly as the broader tech sector rally shows signs of losing steam. Nevertheless, investors remain optimistic about Amazon’s long-term growth potential, with expectations of strong earnings and revenue growth in the coming years.