Amazon (NASDAQ:AMZN) stock recently hit new 52-week highs. A variety of factors drive this rally, but the skeptics are warning off new investors and exhorting existing investors to sell into strength. Some leaning more towards optimism when it comes to this stock are arguing for convoluted ways to minimize downside risk. For instance, in a recent article, a Barron’s commentator laid out such a strategy.
Investors are free to choose what’s best for their portfolio. Those with experience in making sophisticated trades could find profit with complex strategies, but the best choice may just well be to keep it simple. Here’s what I mean.
AMZN Stock: What’s Behind the Latest Surge
Based on recent headlines, you may be quick to chalk up the recent surge for Amazon shares to a resurgence in “AI Mania.” After all, it was Amazon’s latest earnings release, which including many promising developments regarding the company’s AI efforts, that kicked off this rally starting in late October.
Not only that, the latest news keeping AMZN stock on an upward trajectory has to do with the AI mega-trend. Just this week, the company unveiled Q, a generative artificial intelligence chatbot platform for businesses. Q could mark the start of Amazon capitalizing on growing demand from businesses for AI-based applications.
However, while a big reason behind renewed bullishness for AMZN, AI-related excitement is not the only reason. There is also growing confidence that Amazon’s e-commerce segment will perform very well during this holiday shopping season, following the company’s reporting of record Black Friday and Cyber Monday sales volumes.
Not everyone believes the current price trends will hold, despite the new highs. Yet while it’s very possible this rally soon runs out of steam, that doesn’t mean your best move is to head for the exits.
As Others Say Sell/Hedge, Why Buy?
I can understand why some could be concerned that AMZN stock could be “primed” (pun not intended) to experience a hard fall, if subsequent news, or even the whims of the market, causes sentiment to shift towards bearish.
At current prices, shares trade for 55.1 times forward earnings. That’s a rich multiple, any way you slice it, and only sustainable if Amazon can deliver in terms of sales and earnings growth. This rich valuation also gives credence to some other less-optimistic takes about this stock currently out there, such as that the upside from a strong holiday quarter for AMZN is already priced-in.
Yes, after surging by double-digits in the span of a month, excitement for AMZN could soon calm down. There may even be a modest pullback, as some take heed of some opinions out there, and take profit. Yet while the skeptics may say sell, and those on the fence say hedge/cash out, I remain bullish.
As I argued a few weeks back, the earnings release mentioned above contained numerous positive takeaways suggesting growth in 2024. These, coupled with the latest news, point to another banner year for this stock.
The Most Simple Approach is the Best Approach
Amazon continues to take its foot off the growth spending pedal with its e-commerce segment. This points to improved profitability, irrespective of whether the company reports a record holiday quarter or not.
Also, as I’ve pointed out before AWS, Amazon’s cloud-computing segment, continues to grow at a steady pace. Strong results from e-commerce and cloud computing provide the company with a solid baseline of growth.
On top of this, success in new areas like generative AI could serve as the cherry on top, enabling Amazon as a whole to not just meet, but handily beat, growth expectations in the coming year.
With such strong prospects, there’s no need to overthink your way out of a long-term position. As the most simple approach is the best approach, buy or add to an AMZN stock 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.
