Amazon.com Inc. (AMZN) has garnered significant attention as investors closely monitor its stock performance, which has recently rebounded off key moving averages, setting the stage for potential legal challenges. The Federal Trade Commission (FTC) is considering an antitrust lawsuit against the e-commerce and cloud computing giant, a development that could have far-reaching implications.
On the stock market today, Amazon shares gained 2.2%, closing at $138.01, following an announcement of a strategic distribution partnership with Shopify (SHOP). Despite some overlap in the online merchant sphere, where businesses often use either Amazon or Shopify as their platform, Amazon is poised to attract new customers through this collaboration.
Amazon has taken a significant step by extending its expansive distribution network to merchants who do not sell products directly on its platform. This initiative, part of the Buy With Prime program, offers product fulfillment services to a broader array of businesses. Moreover, Amazon recently unveiled plans to launch an application providing U.S. merchants using Shopify access to the Amazon Buy with Prime service.
In 2023, Amazon’s stock has demonstrated remarkable resilience, boasting a 64% increase in value. Following a noteworthy 10.6% surge in share price following its second-quarter earnings report on August 3rd, Amazon experienced a slight pullback that brought it in line with its 50-day moving average by August 25th. Subsequently, the stock has rebounded, presenting an actionable opportunity from its 21-day exponential moving average.
Investors with a keen eye for stock market trends are likely observing that, in the case of high-performing stocks, they tend to find consistent support around the 21-day moving average after an initial breakout for several weeks. For those considering an investment in AMZN stock, it may be prudent to wait for a potential formation of a new base with a buy point at $143.63. The recent consolidation in Amazon’s stock price can be likened to the formation of a handle within a year-long base, a pattern often seen in healthy stock charts.
Despite the looming specter of a possible FTC antitrust lawsuit, the broader market seems relatively unfazed by this development. The FTC is scrutinizing Amazon’s policies, particularly those that may compel merchants to utilize its logistics and advertising services. In the worst-case scenario, the FTC could pursue measures to break up the company. However, Amazon appears poised to defend its position in a court of law, taking confidence from the recent legal outcome in the FTC’s case against Meta Platforms, the parent company of Facebook. Additionally, Amazon has successfully negotiated an agreement with the European Commission to resolve an antitrust investigation, bolstering its position.
Amazon Stock Thrives as AI Reshapes the Cloud Market Landscape
In tandem with its strong financial performance, Amazon continues to solidify its presence in the cloud computing sector. During the second quarter, Amazon reported earnings of 65 cents per share, accompanied by robust sales of $134.4 billion, surpassing analyst expectations. By comparison, the same period in the previous year saw Amazon incurring a loss of 20 cents per share, with sales totaling $121.2 billion.
Amazon Web Services (AWS), the company’s cloud-computing division, reported a year-over-year revenue increase of 12% to $22.1 billion. While this growth rate was slightly lower than the 16% achieved in the first quarter, it exceeded estimates of 10% growth. Amazon’s executives also noted that AWS sales have achieved a degree of stabilization.
Looking ahead to the current quarter ending in September, Amazon has forecasted an operating income of $7 billion on sales totaling $140.5 billion, based on its midpoint projections. Analysts had anticipated lower figures, with an operating income of $5.5 billion on sales of $138.3 billion.
Challenges and Considerations on Amazon’s Horizon
Despite Amazon’s prominent position as a cloud-computing service provider, the emergence of generative artificial intelligence presents a potential threat. This technology has the capacity to generate various forms of content, including written articles, images, videos, and music, based on simple descriptive input. Generative AI systems leverage vast datasets to create new content and even write computer programming code. Amazon is actively partnering with companies specializing in large language models at the forefront of generative AI.
In addition to the AI landscape, Amazon faces formidable competition in its core e-commerce business, as its rivalry with Walmart (WMT) intensifies. Moreover, the profitability of Amazon’s video streaming segment remains a subject of concern for investors, with content costs coming under scrutiny, mirroring challenges faced by companies like Walt Disney (DIS) and others in the same space.
Assessing Amazon’s Technical Ratings
From a technical perspective, Amazon’s stock boasts strong ratings, with an IBD Composite Rating of 91 out of a possible 99, as reported by IBD Stock Checkup. This Composite Rating amalgamates five distinct proprietary ratings into a single, user-friendly metric, with scores above 90 typically indicative of the best growth stocks. Additionally, Amazon’s Relative Strength Rating stands at 89.
Further strengthening its position, Amazon holds an Accumulation/Distribution Rating of A-minus. This rating evaluates price and volume fluctuations in a stock over the preceding 13 weeks of trading, signaling a higher level of buying activity compared to selling.
In summary, Amazon’s current market performance and strategic moves have placed it under the spotlight, as investors weigh its potential response to impending antitrust scrutiny and its continued dominance in the ever-evolving landscape of e-commerce and cloud computing.
