Despite one analyst cutting his price target, most remain bullish on Amazon, and macro data today broke in this growth stock’s direction.
Shares of Amazon (AMZN 0.19%) were moving higher on Monday, up 3.1% as of 12:38 p.m. EDT, even higher than the Nasdaq, which was also having a solid day, up around 2% at the same time.
One Wall Street analyst reiterated his buy rating for Amazon shares today even while also lowering his price target. In addition, several macroeconomic data factors pointed to a strong dollar and relief from inflation, which had plagued Amazon shares all last year.
Because Amazon is a large-cap company, it has a hard time escaping macroeconomic factors. But while the macro environment worked against Amazon’s shares in a big way last year, it favored them today. On Monday, the Federal Reserve released results from its December inflation survey, in which expectations for inflation over the next year fell 20 basis points to 5%, the lowest reading since July 2021.
When we combine that with the moderating wage growth seen in last Friday’s labor report, it appears that the pressures of core inflation could be abating. That’s a great sign that growth stock investors are hoping for, since high and persistent inflation is a killer for companies with the bulk of their earnings far out in the future.
In combination with moderating inflation expectations, the 10-year Treasury Bond yield also fell slightly on Monday, as did the value of the dollar against other currencies. The 10-year yield is often a benchmark against which investors form their discount rates on stocks, so when it goes lower, that means the value of future cash flows goes up and vice versa.
Meanwhile, the strong dollar absolutely killed Amazon’s international revenues, which are worth less in dollar terms when the dollar strengthens, in the third quarter. Therefore, to see the dollar weaken is also potential good news for Amazon’s international segment.
One analyst also remained bullish on Amazon stock today despite its nasty 50% decline last year. On Monday, Jefferies (JEF 2.03%) analyst Brent Thill released a note reiterating his buy rating on Amazon shares, although he also lowered his price target from $135 to $125. Perhaps the lower price target reflects fears of economic weakness and lackluster demand.
On the other hand, Thill also sees the cost pressures Amazon experienced last year as easing. That’s not surprising, as fuel prices and the dollar have come down materially since the summer, and CEO Andy Jassy is currently in the midst of a big cost-cutting program that will see as many as 18,000 layoffs at the e-commerce and cloud giant.
Of all the large-cap tech stocks collectively known as FAANG, I think Amazon has a shot at making the biggest recovery. Amazon has now underperformed not just for one year but really for two years, and it is still 56% off its all-time high even after today’s rise.
However, given not one but several of its cost pressures easing, as well as its solid moat and easier comparisons for the e-commerce, digital advertising, and cloud computing divisions, Amazon has a great shot at making a meaningful recovery in 2023 as 2022’s various headwinds reverse.