Amazon Climbs Above 2021 Highs: Time to Buy the E-Commerce Giant?

It’s been a long road back to new highs for many tech companies. While several of the Magnificent 7 stocks already eclipsed their former highs, one recently broke out in conjunction with the broader Nasdaq Composite index.

One of the largest e-commerce companies in the world, Amazon maintains a strong position in the online retail marketplace, backed by its Prime membership with ultrafast delivery services. The company has diversified into a host of other categories and is now the leading provider of cloud infrastructure as a service to enterprise customers with its Amazon Web Services (AWS) offering.

An expanding global presence and growing capabilities in areas such as generative AI, health care, grocery, and autonomous driving are major tailwinds for Amazon moving forward.

The Zacks Rundown

Amazon AMZN, currently a Zacks Rank #3 (Hold), is benefitting from underlying momentum in both retail and technology sectors. Shares are displaying relative strength as buying pressure accumulates in this market leader.

The company is part of the Zacks Internet - Commerce industry group, which currently ranks in the top 36% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. This group is widely outperforming the market over the past year:

Zacks Investment Research
Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

Also note the favorable characteristics for this industry below:

Zacks Investment Research

Zacks Investment Research
Image Source: Zacks Investment Research

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Recent Earnings Results and Future Estimates

Amazon's financial prowess is undeniable, with its first-quarter results propelled by Prime and AWS. Earlier in May, the tech behemoth delivered adjusted Q1 earnings of $1.13/share, a 264% jump from the year-ago period. The figure topped the Zacks Consensus Estimate by 36.1%.

Net revenues of $143.31 billion during the quarter rose 13% year-over-year. Growing momentum in AWS, expanding investments in generative AI, as well as strength in its advertising business contributed to the upbeat results.

Amazon has delivered a trailing four-quarter average earnings surprise of 48.2%, topping estimates in each of those instances. For the current quarter (Q2), analysts have increased EPS estimates by 10.87% in the past 60 days. The Q2 Zacks Consensus Estimate now stands at $1.02/share, reflecting a nearly 62% improvement year-over-year. Revenues are projected to climb 10.6% to $148.59 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

AMZN stock has responded favorably, breaking out to new all-time highs. Shares have advanced more than 22% already this year.

StockCharts
Image Source: StockCharts

Will Amazon Soon Initiate a Dividend?

A titan in the tech world, Amazon is standing as the solitary giant among its peers, steadfastly declining to distribute dividends to its shareholders. However, amidst a landscape where its contemporaries are succumbing to shareholder pressure, whispers abound of an imminent shift in Amazon's dividend policy.

In a flurry of shareholder-friendly moves, tech behemoths have succumbed to the allure of dividends. Facebook-parent Meta Platforms META and Google-parent Alphabet GOOGL spearheaded this trend, amplifying investor returns through quarterly dividends and reinforced stock buyback programs.

Apple's AAPL recent announcement of a dividend increase alongside a monumental share repurchase program further underscores this shift. These initiatives serve as a potent sweetener for investors, especially amidst the backdrop of capital-intensive AI endeavors and signs of growth deceleration in certain business segments.

Amidst this shareholder fervor, Amazon thus far stands as an enigma, resisting the temptation to join the dividend fray. But its resilience is not without merit. Bolstered by its thriving enterprise cloud operation, the company continues to scale unprecedented heights. AWS remains a pivotal revenue driver and is poised to breach the $100 billion revenue mark this year, buoyed by surging demand for generative AI services and cloud migration trends.

Despite news of former AWS CEO Adam Selipsky stepping down recently, the segment remains in good hands with long-time insider Matt Garman taking on the role.

Bottom Line

Supported by a robust suite of services, relentless innovation, and a burgeoning global footprint, Amazon remains poised for sustained growth and market dominance.

New highs for AMZN shares are a sign of strength. The stock’s performance is backed by a positive revisions trend in terms of earnings estimates.

Make sure to keep an eye on Amazon as the tech juggernaut looks primed to continue its outperformance.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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