Amazon - 3 reasons to expect fresh highs


Amazon has faced a challenging 2022, but the company's shares have shown resilience in 2023, rallying 80% by mid-September and coming close to their 2021 all-time high. Despite a subsequent 20% drop in September, a positive turn of events, highlighted by strong Q3 earnings, provides three compelling reasons to anticipate a return to fresh highs.

Strong Headline Beats:
Amazon exceeded expectations in key fundamental metrics, with earnings per share surpassing the consensus by an impressive 56%. Quarter-over-quarter revenue also saw a 12% increase, signaling a robust performance, especially given recent concerns about Amazon's market confidence. These positive results set the stage for a potential rally, and with the crucial holiday season approaching, the company seems poised for another record-breaking quarter.

Robust Metrics and Growth:
Beyond headline numbers, Amazon's operating income, particularly in North America, continued its six-quarter upward trend. The AWS business, a crucial driver for long-term growth, also performed well, with indications that recent growth deceleration has stabilized. The company's focus on generative AI innovation is making AWS an attractive cloud computing platform. Additionally, the Advertising unit displayed strong revenue growth, alleviating concerns and supporting forward guidance.

Attractive Technical Setup:
Despite a recent sell-off and a break in the 2023 uptrend, Amazon's stock displays an appealing technical setup. The rally since January has formed a pattern of higher highs and higher lows, suggesting a robust foundation for upward movement. Higher lows indicate consistent buyer interest during market dips, while higher highs reinforce an improving outlook. The stock's Relative Strength Index (RSI) of 48 and a potential bullish turn in the Moving Average Convergence Divergence (MACD) suggest that Amazon shares may still be undervalued.

In conclusion, the confluence of strong fundamentals, positive growth metrics, and a technically sound setup paints a favorable picture for Amazon's future performance. While market dynamics can change, the current indicators suggest the potential for a rebound and a move beyond the September high. Investors should remain vigilant, but the recent positive developments provide optimism for the stock's trajectory.

Note: The views expressed are those of the author and are not necessarily reflective perspectives.