TLDR
- Amazon stock rose 2.9% on Monday, trading above its 21-day moving average for the first time since February
- Analysts remain positive on Amazon’s long-term AI growth potential, particularly through AWS
- The company plans to expand its AI capabilities with custom-made chips that could compete with Nvidia
- Amazon is continuing cost-cutting measures, including eliminating 14,000 managerial positions
- Macroeconomic concerns including potential recession and trade tensions pose short-term challenges
Amazon’s stock has rebounded, rising 2.9% to $201.95 on Monday. This marks the first time since February 11 that the stock has traded above its 21-day moving average.
The tech giant has also reclaimed its 200-day moving average. This is a positive sign after falling below this long-term trendline on March 12.
The stock had been on a seven-week losing streak. This was its longest slide since an eight-week decline in 2022.
President Donald Trump’s signal of “flexibility” in his upcoming reciprocal tariffs helped ease trade war concerns. These concerns have weighed heavily on stocks in recent weeks.
Analysts Remain Bullish on AI Potential
Monness Crespi Hardt analyst Brian White offered positive commentary on Amazon’s AI cloud positioning. This followed Nvidia’s closely-watched GTC AI conference last week.
White believes Amazon Web Services (AWS) “has already benefited from gen AI by training LLMs.” He expects these growth drivers to broaden over time.
White maintained a buy rating for Amazon stock with a target price of $265. He noted that “despite near-term turbulence, AWS remains well-positioned for long-term AI trends.”
A bigger opportunity may lie ahead according to White’s research. Nvidia CEO Jensen Huang indicated that running AI models, known as inferencing, will be a larger market in the future than training them.
Wedbush analyst Dan Ives reported that AI spending now drives 12% of IT budgets. This is up from 10% in January and is expected to accelerate through the rest of the year.
Ives noted many IT departments are focusing on “foundational hyperscale deployments for AI around Microsoft, Amazon, and Google.” These deployments are centered on software-driven use cases currently underway.
Business Growth and Cost-Cutting Efforts
Amazon’s fourth-quarter results showed continued strength. Net sales jumped 10% year over year to $187.8 billion.
The company’s North American e-commerce unit had a particularly successful holiday shopping season. This helped drive the recent top-line growth.
Amazon’s bottom line is also flourishing. Operating income expanded by 61% year over year to $21.2 billion in Q4.
AWS contributed around half of Amazon’s total operating income. This cloud computing division is vital due to its higher margins compared to e-commerce.
CEO Andrew Jassy has shifted the company’s strategy since taking over from Jeff Bezos. He has moved away from growth-at-all-costs to prioritize profitability.
Amazon continues to implement cost-cutting measures. The company plans to eliminate approximately 14,000 managerial positions this year.
Analysts at Morgan Stanley predict these cuts could save between $2.1 billion and $3.6 billion annually. This demonstrates the company is cutting costs from a position of strength, not weakness.
Capital Expenditure and Custom AI Chips
Amazon remains committed to heavy capital expenditures. These investments target data centers and advanced computing chips to serve AI-related demand.
The tech giant plans to expand its role in the AI chip market. This month, it announced plans to offer discounted access to servers powered by its custom-made AI chip, Trainium.
According to The Information, these chips match the performance of Nvidia’s H100 GPUs at about a quarter of the cost. This positions Amazon to capture a share of the AI chip market.
The massive spending plans from cloud hyperscalers including Amazon, Meta Platforms, Google parent Alphabet, and Microsoft could offer positive signals for the market. These four companies are expected to spend $338 billion on capital expenditures this year according to Melius Research.
This represents a more than 40% year-over-year increase. Melius analyst Ben Reitzes noted one key difference between now and the dot-com bubble: “we didn’t have four hyperscalers so big and well capitalized committed to spending to achieve AGI back then.”
Short-Term Challenges
Despite the positive long-term outlook, Amazon faces near-term challenges. The company’s stock has fallen 16% from its early February high.
Amazon’s slump began after providing a lower-than-expected sales forecast with its Q4 results on February 6. A broader market downturn has contributed to the stock’s recent slide.
For the first quarter, management expects top-line growth between 5% and 9%. However, they also anticipate an unfavorable foreign currency exchange impact of $2.1 billion on sales.
This may reflect increasing volatility in foreign exchange markets due to President Trump’s tariffs and trade policies. These have led to retaliatory tariffs, boycotts, and fears of a trade war.
JP Morgan’s chief global economist now sees a 40% chance that the U.S. will fall into a recession this year. As a multinational company with significant operations in consumer goods, Amazon appears vulnerable to these types of headwinds.
During an economic downturn, consumers typically reduce discretionary spending. They may shift more shopping to discount retailers like Walmart, which focuses more on essential goods.
Despite these challenges, analysts remain optimistic. They project a gain of 36% for Amazon stock over the next 12 months, though macroeconomic uncertainty could cause downward revisions.
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