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Amazon (AMZN) Plunges 19.1% in a Month: Should You Buy the Dip?
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Amazon (AMZN - Free Report) has seen its stock plunge 19.1% in the past month. This drop is wider than the 15.3% and 7.4% declines of the Zacks Internet-Commerce industry and the S&P 500, respectively.
The AMZN stock has taken a sharp downturn, which can be primarily attributed to its lower-than-expected second-quarter 2024 revenues. Although strength in Prime, growing relationships with third-party seller and accelerating online store sales were positive, foreign exchange headwinds and changing consumer spending patterns were concerning.
The e-commerce giant provided weak third-quarter 2024 revenue guidance. It expects net sales between $154 billion and $158.5 billion, the mid-point of which ($156.25 billion) was below the expectation on Aug 1. The mid-point is also below the Zacks Consensus Estimate of $157.03 billion.
Consumers’ growing preference for lower-ticket items, such as everyday essentials and consumables, and avoiding luxury or expensive purchases are hurting Amazon’s sales growth. It has also been observed that consumers nowadays tend to wait longer to make a purchase or discard their cart completely. The reasons behind this unusual distraction of customers remain macro headwinds, high inflation and gearing up for national events like the presidential election.
One-Month Price Performance
Image Source: Zacks Investment Research
This situation has put investors at a crossroads, raising the question: is it time to buy, hold or sell the AMZN stock?
Although the downturn in the retail business remains a major concern for the company, its dominant position in the booming cloud computing market on the back of continued strength in the cloud computing business — Amazon Web Services (“AWS”) — remains encouraging. In second-quarter 2024, AWS revenues rose 19% year over year to $26.3 billion (18% of net sales), driven by strengthening generative AI capabilities.
Generative AI Strength: Key Catalyst
AWS is gaining significantly from the solid adoption of Amazon Bedrock, which has provided it with a breakthrough in the generative AI space. Amazon Bedrock offers seamless access to high-performing foundation models from AI companies through an API.
The company recently introduced Bedrock innovations, including custom model import and model evaluation capabilities, and Guardrails. These features are designed to provide customers a secure, easy and fast way to develop advanced generative AI applications.
With a wide selection of foundation models from AI21 Labs, Anthropic, Cohere, Meta, Mistral AI and Stability AI, Bedrock offers seamless deployment, scalability and continuous optimization.
AWS also offers a generative AI-powered assistant called Amazon Q, which generates codes, tests and debugs, and has multi-step planning and reasoning capabilities.
The company’s collaboration with NVIDIA, through which it will make the latter’s Blackwell GPU platform available on AWS, is a plus. This will aid in speeding up inference workloads for resource-intensive, multi-trillion-parameter language models.
Strong Clientele Drives Growth
AWS is witnessing solid customer momentum on the back of its strengthening generative AI capabilities.
The latest collaboration of Exscientia (EXAI - Free Report) with AWS remains noteworthy. Per the terms, Exscientia is expanding the use of AWS’s AI and machine learning services to accelerate early drug development at a lower cost. It is leveraging generative AI models of AWS to design drug candidates efficiently. It has deployed generative AI in its DesignStudio. EXAI draws on large language models via Amazon Bedrock.
SAP recently teamed up with AWS to embed generative AI solutions across its enterprise resource planning applications. SAP integrates generative AI models from Amazon Bedrock, such as the Anthropic Claude 3 model family and Amazon Titan, into its generative AI hub in SAP AI Core.
CrowdStrike extended its strategic partnership with AWS to accelerate cloud security and AI innovation. It is using Amazon Bedrock and Amazon SageMaker in order to boost innovation in SIEM transformation, and novel cybersecurity AI use cases.
Brightcove started using Amazon’s generative AI assistant called Amazon Q Business on AWS internally for real-world use cases applicable to the enterprise, media and entertainment technology sectors.
Smartsheet has also implemented Amazon Q Business to introduce a generative AI-powered assistant for its employees.
BlackBerry leverages Amazon Bedrock to power its generative AI-backed cybersecurity advisor called Cylance Assistant.
We believe that AWS’s expanding customer base will drive its top-line growth in the days ahead.
The Zacks Consensus Estimate for 2024 AWS revenues is pegged at $106.6 billion, indicating year-over-year growth of 17.4%.
Expanding clientele will also continue to help AWS sustain its dominant position in the global cloud market, and gain a competitive edge against its peers, namely Microsoft (MSFT - Free Report) and Alphabet’s (GOOGL - Free Report) Google.
Impressive Long-term Projections
Amazon’s long-term prospects are expected to benefit from the solid momentum in AWS, primarily driven by growing generative AI capabilities. An expanding data center network, a strong portfolio, and an increasing number of AWS Regions and Availability Zones remain a plus.
The Zacks Consensus Estimate for 2024 revenues is pegged at $634.78 billion, which indicates a year-over-year increase of 10.4%.
The consensus mark for 2024 earnings stands at $4.73 per share, indicating year-over-year growth of 62.1%. The estimate has been revised upward by 2.8% over the past seven days and 3.3% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion
Amazon, being the cloud giant, presents a solid investment opportunity due to its deepening focus on generative AI, AI integration and innovative product development.
However, the company’s near-term prospects remain foggy due to sluggish growth in e-commerce sales. Geo-political tensions, foreign exchange headwinds, recessionary fears, high inflation and regional labor market constraints are concerning for its retail business.
Moreover, AMZN is trading at a premium with a forward 12-month P/S of 2.49X compared with the industry’s 1.75X, reflecting a stretched valuation.
Image Source: Zacks Investment Research
For current shareholders, holding on to the stock seems prudent, as the company’s fundamental strengths and growth drivers are intact. However, new investors should consider waiting for a more attractive entry point, possibly on further dips, to ensure that they are not overpaying for future growth.
Image: Bigstock
Amazon (AMZN) Plunges 19.1% in a Month: Should You Buy the Dip?
Amazon (AMZN - Free Report) has seen its stock plunge 19.1% in the past month. This drop is wider than the 15.3% and 7.4% declines of the Zacks Internet-Commerce industry and the S&P 500, respectively.
The AMZN stock has taken a sharp downturn, which can be primarily attributed to its lower-than-expected second-quarter 2024 revenues. Although strength in Prime, growing relationships with third-party seller and accelerating online store sales were positive, foreign exchange headwinds and changing consumer spending patterns were concerning.
The e-commerce giant provided weak third-quarter 2024 revenue guidance. It expects net sales between $154 billion and $158.5 billion, the mid-point of which ($156.25 billion) was below the expectation on Aug 1. The mid-point is also below the Zacks Consensus Estimate of $157.03 billion.
Consumers’ growing preference for lower-ticket items, such as everyday essentials and consumables, and avoiding luxury or expensive purchases are hurting Amazon’s sales growth. It has also been observed that consumers nowadays tend to wait longer to make a purchase or discard their cart completely. The reasons behind this unusual distraction of customers remain macro headwinds, high inflation and gearing up for national events like the presidential election.
One-Month Price Performance
Image Source: Zacks Investment Research
This situation has put investors at a crossroads, raising the question: is it time to buy, hold or sell the AMZN stock?
Although the downturn in the retail business remains a major concern for the company, its dominant position in the booming cloud computing market on the back of continued strength in the cloud computing business — Amazon Web Services (“AWS”) — remains encouraging. In second-quarter 2024, AWS revenues rose 19% year over year to $26.3 billion (18% of net sales), driven by strengthening generative AI capabilities.
Generative AI Strength: Key Catalyst
AWS is gaining significantly from the solid adoption of Amazon Bedrock, which has provided it with a breakthrough in the generative AI space. Amazon Bedrock offers seamless access to high-performing foundation models from AI companies through an API.
The company recently introduced Bedrock innovations, including custom model import and model evaluation capabilities, and Guardrails. These features are designed to provide customers a secure, easy and fast way to develop advanced generative AI applications.
With a wide selection of foundation models from AI21 Labs, Anthropic, Cohere, Meta, Mistral AI and Stability AI, Bedrock offers seamless deployment, scalability and continuous optimization.
AWS also offers a generative AI-powered assistant called Amazon Q, which generates codes, tests and debugs, and has multi-step planning and reasoning capabilities.
The company’s collaboration with NVIDIA, through which it will make the latter’s Blackwell GPU platform available on AWS, is a plus. This will aid in speeding up inference workloads for resource-intensive, multi-trillion-parameter language models.
Strong Clientele Drives Growth
AWS is witnessing solid customer momentum on the back of its strengthening generative AI capabilities.
The latest collaboration of Exscientia (EXAI - Free Report) with AWS remains noteworthy. Per the terms, Exscientia is expanding the use of AWS’s AI and machine learning services to accelerate early drug development at a lower cost. It is leveraging generative AI models of AWS to design drug candidates efficiently. It has deployed generative AI in its DesignStudio. EXAI draws on large language models via Amazon Bedrock.
SAP recently teamed up with AWS to embed generative AI solutions across its enterprise resource planning applications. SAP integrates generative AI models from Amazon Bedrock, such as the Anthropic Claude 3 model family and Amazon Titan, into its generative AI hub in SAP AI Core.
CrowdStrike extended its strategic partnership with AWS to accelerate cloud security and AI innovation. It is using Amazon Bedrock and Amazon SageMaker in order to boost innovation in SIEM transformation, and novel cybersecurity AI use cases.
Brightcove started using Amazon’s generative AI assistant called Amazon Q Business on AWS internally for real-world use cases applicable to the enterprise, media and entertainment technology sectors.
Smartsheet has also implemented Amazon Q Business to introduce a generative AI-powered assistant for its employees.
BlackBerry leverages Amazon Bedrock to power its generative AI-backed cybersecurity advisor called Cylance Assistant.
We believe that AWS’s expanding customer base will drive its top-line growth in the days ahead.
The Zacks Consensus Estimate for 2024 AWS revenues is pegged at $106.6 billion, indicating year-over-year growth of 17.4%.
Expanding clientele will also continue to help AWS sustain its dominant position in the global cloud market, and gain a competitive edge against its peers, namely Microsoft (MSFT - Free Report) and Alphabet’s (GOOGL - Free Report) Google.
Impressive Long-term Projections
Amazon’s long-term prospects are expected to benefit from the solid momentum in AWS, primarily driven by growing generative AI capabilities. An expanding data center network, a strong portfolio, and an increasing number of AWS Regions and Availability Zones remain a plus.
The Zacks Consensus Estimate for 2024 revenues is pegged at $634.78 billion, which indicates a year-over-year increase of 10.4%.
The consensus mark for 2024 earnings stands at $4.73 per share, indicating year-over-year growth of 62.1%. The estimate has been revised upward by 2.8% over the past seven days and 3.3% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion
Amazon, being the cloud giant, presents a solid investment opportunity due to its deepening focus on generative AI, AI integration and innovative product development.
However, the company’s near-term prospects remain foggy due to sluggish growth in e-commerce sales. Geo-political tensions, foreign exchange headwinds, recessionary fears, high inflation and regional labor market constraints are concerning for its retail business.
Moreover, AMZN is trading at a premium with a forward 12-month P/S of 2.49X compared with the industry’s 1.75X, reflecting a stretched valuation.
Image Source: Zacks Investment Research
For current shareholders, holding on to the stock seems prudent, as the company’s fundamental strengths and growth drivers are intact. However, new investors should consider waiting for a more attractive entry point, possibly on further dips, to ensure that they are not overpaying for future growth.
Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.