In pre-market trading today (November 1), Amazon (NASDAQ:AMZN) stock rose 6.4%. This comes after it released its latest quarterly earnings after the market closed last night. Given the mixed bag of results from other mega-cap peers, I think the reaction is indicative of what might happen next.
Results
Let’s start by checking the details quickly. For the quarter, revenue increased 11% compared to the same period last year to $158.9bn. One of the main factors that helped drive this increase was continued outperformance in the Amazon Web Services (AWS) division. This ultimately filtered down to the bottom line and contributed to a 52% jump in earnings per share.
Both the revenue and EPS numbers were above analysts’ expectations, which usually means the stock will rally given a positive surprise.
It wasn’t just last quarter’s numbers that helped the stock price. The last quarter of the year is especially important for Amazon, as it coincides with the holiday season. This is a very profitable time. According to guidance, the company expects sales to increase by 7%-11% compared to Q4 last year. For such a large company already, achieving that kind of percentage growth would be pretty impressive.
The future
Despite the potential move when the market opens on Friday, the stock is up 36% over the past year. It is true that the benefits are not as great as some peers like Meta Platformsand technology stocks are up 82% over the same period.
However, an idea from here that I think can change things. Meta shares fell 4% yesterday. Why? Although the results were good, the outlook was not very encouraging. This is in contrast to Amazon, where I believe the company has a lot of momentum going forward.
It has a highly diversified revenue stream. It can include banking in traditional areas such as retail sales and Amazon Prime services. But it is also moving forward with new AI-powered features, which have the potential to increase revenue.
Let’s also not forget that business exists around the world. In the last quarter, North American sales grew by 9%. However, sales of foreign stores also increased by 12%, which shows that it is not dependent on only one region.
Putting it together
One risk is that technology stocks are undervalued. With a price-to-earnings ratio of 45.67, it is more than what I would consider fair value. Of course, some of this is because future earnings are increasing. However, even this stock is simply not cheap.
On balance, I think Amazon’s stock has the last legs to go higher, based on the outlook given by management. I have a feeling that some investors may reduce their holdings in other tech stocks after they get more money and allocate that money to Amazon. On that basis I am thinking of putting some money in stocks.
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