When Amazon’s rally commenced at the inception of last year, it seemed improbable for the tech giant to regain its footing. Shares had plummeted by half amidst inflation fears and a widespread market exodus, causing widespread apprehension.
However, what started as a descent to 2018 levels in January 2023 swiftly transformed into a turning point. Despite intermittent setbacks, the trajectory has predominantly been upward. Just as high inflation previously harmed Amazon, its retreat is currently fortifying the company.
Amazon has a unique advantage over other tech firms in this scenario. Lower inflation not only fuels consumer spending on its e-commerce platform but also makes a compelling case for reduced borrowing costs, thereby trimming expenses.
Evaluating the Potential
Having recently reached an all-time high, what lies ahead for Amazon’s stock rally, and what prospects do investors have for the upcoming months? According to analysts at Citigroup, the succinct answer is further gains – specifically, a 25% increase.
Citigroup recently raised their price target on Amazon shares from $215 to $225 following the impressive Q1 earnings report released at the end of April. The stellar results prompted Citigroup to revise their outlook, believing that the market still underestimates the company’s growth potential.
For those on the sidelines, the bright spot is that Citigroup’s price target suggests a 30% upside from Friday’s closing price. Yet, is this projection plausible, and what pillars underpin the case for a 30% increase?
Robust Earnings Performance
Amazon undeniably exceeded analyst expectations in its earnings report, delivering substantial beats on key metrics. The company recorded a 13% year-on-year revenue increase, marking its second-highest revenue ever. The slightly lesser figure compared to Q4’s peak is inconsequential for Amazon investors as the year-end quarter consistently outshines all others.
The cloud segment showcased strong growth, with CEO Andy Jassy highlighting the revival of AWS’s growth rate due to companies renewing infrastructure modernization efforts and the allure of AWS’s AI capabilities. AWS is already generating an impressive $100 billion annual revenue.
For investors and the market at large, this robust performance arrives at a fortuitous time as Amazon’s shares hover near all-time highs.
Joining the Fray
Beyond Citigroup, numerous positive assessments poured in from Argus, Wells Fargo, BMO Capital Markets, and Morgan Stanley, all reiterating Buy or Outperform ratings and setting price targets well above $200.
If Amazon’s shares maintain an upward trajectory in the coming weeks, they will penetrate uncharted blue skies for the first time since 2020. Technical indicators suggest ample room for growth as the 10% pullback in late April tempered the rally’s momentum.
The stock’s relative strength index (RSI), which gauges its overbought or oversold status, transitioned from overbought to a more balanced state towards the end of April. Although the RSI has been trending upward since, hovering at 57, it indicates a resurgence in momentum, promising hope for those eyeing the projected 30% upside.
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