Like other “Magnificent Seven” tech stocks, Amazon (NASDAQ:AMZN) stock has made a strong recovery, up nearly 70% year-to-date. Following this big run-up, if you currently hold a position, you may be tempted to sell into the stock’s latest round of strength, but it’s far too soon to call it quits
This stock has a very high valuation, but investors are becoming optimistic about interest rates/inflation coming down. There are factors at play that could stop a continued AMZN recovery, it’s not guaranteed this attitude will stymie a comeback. At least, when you consider the strong chances of this dynamo continuing to exceed expectations over the next twelve months.
AMZN Stock: Are Shares Topping Out? No So Fast
Although Amazon shares are trending higher right now, there are concerns that the stock will soon plateau, topping out prior to yet another reversal. Again, there is much those skeptical about shares can point to regarding this bearish argument.
Beyond just the valuation and macro-based variables mentioned above, there is also the possibility of some negative company-specific news emerging just around the corner. That is, e-commerce sales during the Holiday quarter might fall short of Amazon’s already walked-back guidance for the period.
Still, although it may seem like AMZN stock bears have much to point to that backs their argument, it’s also possible that citing these potential negatives is merely a case of grasping at straws.
Despite a high interest rate environment, Amazon has sustained a premium valuation (54.7 times forward earnings), premium to even that of other “Magnificent Seven” tech stocks, due to a very high level of earnings growth.
As for whether this growth can continue, take a look at Amazon’s latest fiscal results. Much from this report signals that elevated levels of earnings growth are likely to continue, despite what current fear, uncertainty, and doubt from the bears would have you think.
Another Blockbuster Year May Lie Ahead
Crack open the aforementioned Q3 2023 earnings release from Amazon, and you’ll quickly see that there are positive takeaways aplenty. For starters, Amazon’s domestic and international e-commerce units reported double-digit revenue growth last quarter, and more importantly, massive improvements in profitability.
As Amazon matures, taking its foot off the growth spending pedal, the e-commerce segments are becoming highly profitable. Further profitability improvements may outweigh any slowdown in revenue caused by softening consumer demand.
Also, despite all the attention being paid towards other leading cloud computing providers, AWS is no slouch when it comes to growth.
AWS’s top-line increased 12% compared to the prior year’s quarters. Operating income increased by nearly 30%, from $5.4 billion to $7 billion. Even as competition heats up, as other tech giants try to grab a large share of the cloud computing market, high overall demand for this service points to steady growth to continue for AWS.
Put it all together, and it’s hard to see Amazon’s earnings beat winning streak (now standing at three quarters in a row of better-than-expected results) ending soon. Another blockbuster year in terms of price performance may be within reach for AMZN.
The Best Move Ahead of 2024
Post-earnings, the sell-side community vastly increased their earnings forecasts for Amazon in 2023, from $3.18 to $3.56 per share on average.
Yet while achieving earnings growth of nearly 35% is no small feat, the rapid swing of Amazon’s e-commerce business to consistent profitability, combined with continued outsized earnings growth for AWS, points to there still being room for future results to beat expectations.
That’s not all. The worries top of mind with investors today (inflation, interest rates, et cetera) may finally start to fully ease next year, as inflation keeps easing back toward target levels.
Previously, I argued AMZN stock has a shot of re-hitting 2021 levels in 2024. As the chances of this happening keep rising, let it ride with an existing position. Or, if you’ve yet to buy, enter a position.
AMZN stock earns an A rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
