Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon's shares have been on an upward trend following a favorable quarterly update that left investors optimistic. The company reported impressive revenue of $134.4 billion, representing an 11% year-over-year increase. Moreover, diluted earnings per share reached $0.65, a significant improvement from last year's loss of $0.20. These outstanding results surpassed Wall Street's expectations, contributing to a 10% surge in the stock's value the day after the announcement.
The tech giant is currently experiencing robust momentum across its various business segments. However, the question remains: are Amazon shares a worthwhile investment at this moment? To make an informed decision, investors should consider the following factors about this FAANG stock.
Currently, there are two compelling storylines for investors to consider when looking at Amazon's performance. The first centers around the company's double-digit revenue growth in the last quarter, a remarkable achievement for a company of Amazon's size. This growth suggests that the markets in which Amazon operates still have substantial room for expansion. Additionally, the strong revenue growth could be indicative of a stabilizing operating environment, given the overall resilience of the economy with cooling inflation and low unemployment. Other tech giants like Apple, Alphabet, Microsoft, and Meta Platforms have also surpassed consensus analyst revenue estimates, adding to the positive outlook for Amazon.
The second encouraging aspect for investors is Amazon's significant surge in profitability. In the year-ago period, the company reported a net loss of $2 billion, but in the most recent quarter, it recorded an impressive profit of $6.8 billion. Like its tech peers, Amazon implemented effective cost-cutting measures, reducing its headcount by 27,000 employees since late last year. As a result, the company's operating margin increased to 5.7% in Q2, up from 2.7% in the same quarter the previous year.
Looking ahead, the optimism continues as management forecasts a strong performance for the current quarter. They expect revenue growth to be between 9% and 13%, with operating income projected to soar by 180% at the midpoint. These positive indicators provide compelling reasons for investors to consider Amazon as a potential investment option.
Amazon's e-commerce operations constitute a crucial and well-known aspect of its business, particularly for investors. The company's online stores experienced a notable 5% sales growth, which is a significant improvement compared to no growth in Q2 2022. This segment contributed to 39% of Amazon's total revenue in the last quarter, highlighting its vital role in the company's overall success.
In the context of the prevailing interest in artificial intelligence (AI), it comes as no surprise that AI was a prominent topic during the Q2 2023 earnings call. CEO Andy Jassy emphasized the company's commitment to incorporating generative AI applications across all teams to enhance customers' experiences.
Amazon Web Services (AWS), a dominant player in the cloud industry, is expected to be a major hub for AI integration in its offerings. Jassy emphasized the significance of data at the core of AI, and due to Amazon's massive customer base in the cloud sector, the company is in a prime position to lead the AI revolution.
Although sales growth at AWS showed a slight slowdown at 12% year over year in the last quarter, the operating margin remains impressive at 24.2%. This highlights the continued strength and profitability of AWS within Amazon's diverse business portfolio.
With Amazon's current strong momentum, there are numerous reasons to be optimistic about the company's prospects. Revenue is on a reaccelerating trend, and profits are steadily increasing, demonstrating robust performance across all operating segments.
Investors have certainly taken notice of Amazon's impressive performance, leading to a remarkable 69% increase in the stock's value in 2023 (as of August 4). Despite this surge, the stock is still reasonably priced, trading at a trailing price-to-sales multiple of 2.7, which is below its trailing-10-year average of 3.1. In fact, except for the past year, Amazon hasn't been this attractively valued since 2017.
As a dominant player that significantly impacts both consumers and businesses on a daily basis, Amazon holds a crucial position in the market and offers ample growth opportunities for the future. Given these factors, Amazon is a compelling candidate to consider adding to your investment portfolio.
As long as the price is above 133.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 139.05
- Take Profit 1: 143.00
- Take Profit 2: 150.00
Alternative scenario:
If the level of 133.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 133.00
- Take Profit 1: 125.00
- Take Profit 2: 120.00
