Can the Rally in Amazon Continue?

Shares of Amazon.com (AMZN) rallied to a 1-year high earlier this month and are up +67% this year due to resurgent profit and revenue growth.  Amazon is up +5% this month, while other mega-cap technology stocks such as Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), and Nvidia (NVDA) have all fallen.  However, some analysts are concerned that Amazon lacks additional catalysts to extend its rally. 

Since posting a 3-1/4 year low in January, shares of Amazon have trended higher up to this month’s 1-year high.  However, Ned Davis Research said the technology sector looks less attractive as it loses momentum and that mega-cap weakness and valuations “have the sector on a short leash for a downgrade.”  Also, Bensignor Investment Strategies said, “With Amazon trading at the highest it’s been in a year, this is not the time or the place to be adding” new long positions.

After Amazon underperformed other mega-cap stocks for the past two years, the stock rallied sharply in Q2 this year and has continued to gain amid the company’s cost-cutting efforts and signs that its cloud business is stabilizing.  According to 13F filings compiled by Bloomberg, hedge funds were net buyers of Amazon in the second quarter, with 172 institutional investors adding to positions, compared with 132 cutting positions.

Optimism in Amazon’s future earnings may help sustain a rally in the stock.  The consensus for Amazon’s 2024 net earnings has risen by more than 20% over the past six months, and the company’s earnings are expected to grow at a double-digit pace each year over the next several years. Amazon’s revenue is also expected to accelerate, although its growth last year was the slowest in the company’s history.  However, weakness in the global economy and rising interest rates threaten any sustainable rally in technology stocks.

Amazon has been trading around the $140 level since posting a 1-year high of $143.63 earlier this month. The stock is trading about 24% below its record high from July 2021, and if it can break out above the one-year high, it would be a bullish development that could spark additional fund buying.  However, Bensignor Investment Strategies said, “This may be an occasion where it is safer to wait for a higher price, once a breakout has been confirmed, rather than bet on a breakout occurring in the first place.”