Bargain Alert: Amazon and Its 35% Upside

Key Points

• Amazon shares have been softening since the first few weeks of May.
• This looks like a temporary breather after crushing their earnings and popping to a record high. 
• Every recent analyst update has been bullish, and we could be looking at a serious entry opportunity.

Having hit an all-time high earlier this month, tech titan Amazon.com Inc NASDAQ: AMZN shares have been taking a bit of a break. They’ve softened to the tune of 7% over the past three weeks, but in the grand scheme of things, this isn’t anything to be worried about. 

The 130% rally that started in early 2023 is still very much intact, and this dip has all the hallmarks of a standard mid-rally breather. In fact, it could be perfect timing for those of us on the sidelines who’ve been looking to get into Amazon.

Understanding Amazon's Relative Strength Index

Amazon stock isn’t afraid to keep its foot on the gas when it is in rally mode. This tends to result in long periods of effective forward-only momentum, making timing entries difficult. The net result is that investors often have to keep chasing or buying at the high, which fuels further gains. 

We got a glimpse of this in action earlier in the month, as the reading on Amazon’s relative strength index (RSI) shot above 70. The RSI considers a stock’s recent performance, usually the past two weeks, and spits out a number between 0 and 100. Anything below 30 suggests the stock is extremely oversold and due a bounce, while anything above 70 is the opposite. 

Buying into a stock for the first time when its RSI is close to, if not well above, 70 can be painful and risky. But with the recent dip bringing Amazon’s RSI all the way down from 72 to 41, you can’t help but feel we could be looking at a golden buying opportunity. 

Bullish Post-Earnings Rally: Amazon Shares Trading at a Bargain

This theory has been backed up by several heavyweight analysts, who, in recent weeks, have clamored to reiterate their Buy ratings on Amazon stock while raising their price targets. Much of this was driven by the company’s solid Q1 earnings report at the end of April, which showed how AI is turning into a new multi-billion recurring revenue business for the company. The report also confirmed for many that one of Amazon’s biggest headwinds from recent years, a broad slowdown in corporate cloud spending, has all but dissipated.

In the aftermath of the report, Morgan Stanley, Wedbush, UBS Group, Citigroup, Barclays, and many of their peers screamed in unison, “Buy.” Refreshed price targets ranged from $220 to $240, but interestingly, Amazon shares topped out at around $190 in their post-earnings rally. They’re currently trading around the $180 mark, adding to the theory that those of us thinking about buying are looking at a solid bargain. 

It’s worth noting that just yesterday, the team at Tigress Financial reiterated their Buy rating and boosted their price target up to a street-high of $245. That’s pointing to a targeted upside of at least 35% from where shares closed on Thursday. Not bad for a $1.9 trillion business. 

Potential Last Weeks to Buy Amazon Shares Under $200

Readers should look for the current slide in Amazon shares to start running out of steam around the $175 mark and definitely above their pre-earnings low of $170. As the major indices are also starting to soften, this might take a couple of weeks to materialize, but a run of green days, with closes near or at the high, will confirm the uptrend is back. 

Some parting thoughts: every single analyst upgrade and price target increase since February has forecasted Amazon shares to be trading above $200. Sure, it hasn’t happened yet, but the stock’s chart is still setting higher highs and lower lows, confirming the rally is in good health. Those of us considering an entry point might be witnessing some of the last weeks that Amazon shares will trade below $200.