Oct 27, 2023

Amazon shares continued to drop on Thursday, with its earnings due out after the close.


AMZN: Weekly Chart

AMZN found resistance at the $143 level and has since dropped to $119.53. The stock may target $100 if earnings disappoint, with larger support at $80.

Investors will be focused on the results of Amazon Web Services (AWS), Amazon’s cloud services division, which is the main contributor to the company’s earnings. Alphabet stock fell and Microsoft stock rose this week due to the former’s poor performance and the latter’s strength in the cloud services segments. Breaking down the headline figures, the consensus analyst forecast for earnings per share (EPS) is $0.60.

While this represents a decrease from the previous quarter’s $0.65, it is more than double the $0.28 EPS recorded during the same quarter the previous year. Consensus estimates for revenue stand at $141.4 billion, reflecting a 5.35% increase compared to the previous quarter and an 11.4% increase year-on-year.

Amazon does have a mixed record of exceeding expectations over the last eight quarters. The figures set to be unveiled after the bell will have to beat last quarter’s AWS cloud revenue of $22.1 billion. Amazon has recently invested in AWS and its AI capabilities, and investors will want to see if the spending pays off and can generate higher growth rates.

The segment has seen slowing growth since 2022, as e-commerce spending has weakened in a tough macroeconomic environment, but a rebound is anticipated this quarter.

Amazon introduced its generative AI application, called Bedrock, in response to Microsoft’s ChatGPT and Google’s Bard, and that will also be watched by analysts. An improvement in AWS growth will be seen as a major positive for Amazon shareholders, but some analysts are now wondering if they were wrong about tech valuations in the AI hype that started in January.

AMZN shares are up 39.5% year-to-date but have fallen 8% over the last month. The Nasdaq may bottom out soon, but AMZN is at risk with its earnings, where slower cloud growth could see further selling for the e-commerce giant.

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