Amazon stock on the verge of a 40% rally

Key Points

• The e-commerce giant smashed analyst expectations for its Q4 earnings. 
• Across the board, all key metrics performed well, and the company's outlook remains super bullish.
• Analysts are calling for as much as 40% upside from last night's closing price, which would put shares back at all-time highs. 

A 7% jump in Friday's pre-market session should tell you everything you need about Amazon.com Inc. NASDAQ: AMZN Q4 results. The e-commerce giant released them after the bell rang to end Thursday's session in one of the most eagerly anticipated reports of the earnings season so far. 

Across the board, Amazon crushed expectations. Their EPS print of $1 was 25% higher than the 80 cents analysts had forecasted, while their revenue for the quarter was nearly $4 billion higher. With its bumped-up consumer spending, the holiday quarter always holds the most promise for Amazon, and there can be no doubt it came through this time. 

Strong performance

Beyond the headline numbers, Amazon's free cash flow for the trailing 12 months came in at $36.8 billion, more than triple from last year. Improvements to the efficiency and speed of its U.S. fulfillment network achieved the fastest delivery times ever for Prime members while simultaneously reducing service costs. 

The company's advertising services performed well, as did their ever-popular Amazon Web Services cloud segment, a big moneymaker in the coming years, and putting in a couple of quarters of mediocre growth, it once again showed its promise with a 13% jump year on year.

The improving macroeconomic environment for cloud spending will help with improved inflation readings and growing rate-cut expectations. Amazon shares have already rallied more than 30% since the end of October on the back of these tailwinds, and investors can look forward to even more gains from last night's report. 

Amazon has been alone among the big tech names like Apple Inc. NASDAQ: AAPL, Meta Platforms Inc. NASDAQ: META and Alphabet Inc. NASDAQ: GOOGL in recent months as the only one that is still trading below 2021's high. But if there were doubts about this achievement in 2024, they were surely swept away last night. 

Bullish outlook

Even with the recent gain in share price and the strong performance for the holiday season, Amazon's outlook is only improving and becoming more bullish. They're now expecting Q1 sales to grow as much as $143.5 billion, versus the previous consensus for $142 billion, and a similar upside is with operating income as well. 

The likes of Piper Sandler weren't slow about lauding the results and calling for immediate upside in shares. Analyst Thomas Champion was particularly optimistic about the effect of generative artificial intelligence (AI) on Amazon's bottom line in the coming quarter. He had no problem giving the stock a fresh price target of $200. 

The Barclays team topped it with a $220 price target, and the JPMorgan team with a $225 price target. From where shares closed on Thursday, that's calling for an immediate upside of some 40%. If Amazon shares hit this in the coming weeks, they'd have smashed through 2021's high water mark and joined their tech titan peers in the fresh all-time-high club. For those of us on the sidelines and considering a position, it doesn't get better. There's the fundamental performance angle, the improving macroeconomic environment angle, and the catch-up play angle. 

Look for Amazon shares to open up on Friday morning and gain into the weekend. Based on the report and bullish commentary, there's every reason to think last night was the last time Amazon traded for less than $160.