Amazon: Analysts Are Bullish Ahead of Earnings

Shares of Amazon.com Inc (NASDAQ: AMZN) have experienced a unique journey this year. After a strong upward trend until April, the stock faced significant fluctuations during the summer months. Fortunately, it has regained ground and is now trading at levels seen in April, despite achieving an all-time high in July. Since August, Amazon shares have surged nearly 25% and are now just 8% away from their record high of $200 as they approach next week's earnings report.

With a market cap of $2 trillion, the Seattle-based tech giant remains a leader in both the e-commerce and cloud services sectors. Expectations surrounding Amazon's future are overwhelmingly positive, with several compelling reasons to view the company as a solid buying opportunity, regardless of the upcoming earnings results.

Consistent Performance in Earnings

One standout feature of Amazon is its ability to consistently beat earnings expectations. The report from August showcased Amazon's strong performance, surpassing analyst predictions and achieving its third-highest revenue ever.

Profitability has also shown remarkable improvement, with the August report yielding the highest earnings per share (EPS) in three years. The upcoming earnings report is anticipated to maintain this strong momentum, potentially exceeding last year's revenue of $170 billion.

Support from Analysts

Apart from solid fundamental performance, Amazon has seen a wave of bullishness from analysts, with most ratings reflecting a positive outlook for the company's stock.

Recently, Needham & Company reaffirmed their Buy rating, complementing similar endorsements from firms like Loop Capital, JMP Securities, and Evercore ISI earlier this month. In October alone, nearly all of the analyst updates—except for one—graded Amazon as a Buy, distinguishing it from other tech stocks that have varied opinions.

The shared sentiment among analysts indicates that Amazon's recent downturn compared to broader market trends has created a lucrative buying opportunity. There is a growing perception that the risk/reward ratio looks particularly favorable ahead of next week's earnings report. For instance, JMP Securities set a price target of $265, indicating a potential upside of over 40% from current prices, suggesting that Amazon could reach new all-time highs.

Considerations to Keep in Mind

Despite the predominantly optimistic outlook, investors should consider some potential concerns. Amazon's price-to-earnings (P/E) ratio stands at 44, which may seem high compared to tech giants like Alphabet Inc (NASDAQ: GOOGL) at 23, Meta Platforms Inc (NASDAQ: META) at 29, and Apple Inc (NASDAQ: AAPL) at 35.

This elevated valuation might give some potential investors pause, especially given Amazon's struggles to reach all-time highs while the S&P 500 index has climbed since September.

Moreover, while many analysts are positive, Wells Fargo downgraded Amazon's rating from Overweight to Equal Weight this month over valuation concerns. However, even with this cautious stance, the stock maintains its upward trajectory, bolstered by consistent growth and strategic advances in AI and cloud services.

Investment Considerations

A key factor supporting the bullish case for Amazon lies in its favorable technical setup. Currently, the stock's relative strength index (RSI) is at 46, indicating significant room for potential upward movement. The RSI is a common technical metric that gauges momentum, with values above 70 suggesting overbought conditions and values below 30 signaling oversold conditions.

Given Amazon's RSI is closer to the lower end, it appears that now could be an opportune moment to consider investing. While risks are associated with buying stocks ahead of earnings announcements, an unprecedented negative surprise would be required to negate the overwhelmingly positive sentiment and outlook that currently surrounds the stock.

Amazon, Earnings, Analysts