Amazon Stock Rally Hits New Highs: Buy Into Earnings?

Key Points

• Shares of Amazon are up 40% since April and are closing in on February’s highs.
• Analysts are continuing to raise their price targets as momentum stays strong.
• However, with a P/E ratio of 37, next week’s report needs to deliver to keep the rally going.

Tech giant Amazon.com Inc NASDAQ: AMZN continues to make a strong case for being one of the market’s top momentum plays of the year to date. Shares closed just below $230 on Monday night after a 1.4% pop extended its multi-month rally to fresh highs.

The stock has been up more than 40% since April and is within striking distance of reclaiming February’s all-time high. 

Much of this run was fueled by the broad return to risk-on sentiment seen in equities in recent months, but Amazon’s stellar Q1 report at the start of May also had an impact. With the company due to release its latest numbers next week, those of us on the sidelines are right to be asking if we should be getting involved ahead of the release, or if it makes more sense to wait until after.

Let’s look at two reasons to buy Amazon before the report, and one to wait. 

Reason to Buy #1. The Uptrend Is Relentless

This rally has barely blinked in recent months. Since April, Amazon has consistently printed higher highs and higher lows, with no significant pullbacks, indicating strong and consistent demand on the bid. In many ways, it’s been a textbook recovery, and while you might expect conditions to be overheating, that’s not yet the case. 

Even with the ongoing rally, the stock’s relative strength index (RSI) sits at a healthy 66, strong, but far from overbought, suggesting there’s still room to run before any cooling off or profit-taking kicks in. The uptrend remains intact, with the bulls firmly in control. It’s a strong signal that the market expects the rally to continue through earnings, making this an attractive setup for momentum-focused investors.

Reason to Buy #2. Wall Street Is Loud and Bullish

Another key reason to consider Amazon ahead of earnings is the unwavering analyst support it continues to attract. This trend has remained strong in recent weeks and shows no signs of slowing, with bullish commentary and target hikes continuing to roll in.

Just yesterday, July 21, the team at Robert Baird reiterated their Outperform rating and boosted their price target to $244. That follows last week’s update from Jefferies, which reiterated its own Buy rating while raising its target to $265. These moves echoed those of others like Morgan Stanley, which earlier this month came out with one of the most bullish calls yet: a $300 price target that implies around 30% upside from current levels.

Given how binary earnings results can be, the fact that Amazon is still attracting big calls like these in the days and weeks before its upcoming report speaks volumes to Wall Street’s confidence in it being a good one. 

The Case for Waiting

Of course, no stock rallies forever without pause, and next week’s numbers will be a big test for Amazon. The recent surge has pushed Amazon’s price-to-earnings (P/E) ratio up to 37, making it one of the more expensive names in big tech. Compare that to Alphabet Inc.’s NASDAQ: GOOGL 21 or Meta Platforms Inc.’s NASDAQ: META 27, and you get a sense of how the stakes are for Amazon to back up the rally. 

That’s precisely where the risk lies. With high expectations, any stumble, whether in AWS revenue, AI commentary, or broader forward guidance, could easily take some of the air out of the rally. Options pricing suggests investors are bracing for a post-earnings move, and history shows Amazon isn’t immune to profit-taking after big runs. So while the uptrend is intact and the sentiment is bullish, depending on your risk appetite, it may make more sense to hold off until the uncertainty has been removed.

The Setup Is Bullish, But Not Bulletproof

That said, Amazon is undeniably one of the top trending stocks in the market right now. The combination of price action, analyst support, and fundamental strength makes it a tempting buy into earnings.

But with valuation now full and expectations high, those of us tempted to pick up some shares beforehand must be aware of the risk of anything less than a stellar report.