Amazon Stands Tall: New Highs Are in Sight

Key Points

• Amazon had another solid quarter, with growth in all segments contributing. 
• AWS led with an increase of 17%, driven by more significant deals and larger clients. 
• Analysts are lifting their targets and leading this market to a new high. 

The bar was set high for Amazon NASDAQ: AMZN, so the Q1 results were doubly strong. The takeaway is that the multinational retail and web services conglomerate is firing on all cylinders, providing favorable guidance, and analysts are lifting their targets. What this means for investors is that recent volatility is ending and turning into a directional movement for share prices. The simple fact is that this stock is on track to set a new all-time high soon, which is an important pivot point for the market. 

All else aside, the technical implications of setting new highs are enormous. In this scenario, the market will break out of a trading range that began in 2020 with the rise of COVID-19, social distancing, and the boom in eCommerce. That range has since been plumbed by a massive correction in 2022, a rebound in 2023, and a return to resistance in 2024. At face value, the range is worth $100 or more than 100%, which gives us our projections. The simple target is $100 + $185 or $285; the bull-case target is $185 + 100% or $370, above the analysts' forecast range. 

Analysts Will Drive Amazon to New Highs

How do the analysts fit into this equation? Very well. The forty-five analysts tracked by Marketbeat.com with ratings on Amazon pegged it as a solid buy and steadily lifted their price targets for the last year. That trend continues after the Q1 release. The two dozen revisions to hit the wires include no price target revisions or downgrades, only price target increases and reaffirmed targets above the consensus. 

The consensus target reported by Marketbeat.com is up 50% in the last twelve months, about 15% above the current price action. It will be a new high when reached, and the freshest targets have this stock trading in the range of $225 to $250. Assuming Amazon continues to build momentum, there is no reason to think otherwise; the trend in sentiment will continue to lead the market toward $285 and lift the consensus target. A move to $285 is worth about a 50% upside from the post-release price points. 

Amazon’s Impressive Quarter and Guidance Lift Shares

Amazon had a solid Q1 with strength in all business segments and revenue streams. The company reported $143.3 billion in revenue, a gain of 12.5% over last year. The top line is $0.75 billion ahead of consensus, aided by an extra day in the quarter. The additional day is due to Leap Year, which added 120 basis points to the top line. Adjusting for that, comparable growth is 11.3% YOY and aligned with expectations. FX also impacted results, shaving nearly 50 bps off the organic gain. 

AWS led segmentally with an increase of 17%. The increase is driven by strong demand for AI, highlighted by longer-term deals worth larger sums to the business. The segment run rate is now over $100 billion annually and growing. CEO Andy Jassy says this and the other business segments are still in their early days and have ample room to run. North American sales increased by 12% and international by 10% on increases in products and services. 

Margin is another area of strength. The company reports improvement in the cost of sales and SG&A, which led to significant improvements in cash flow, earnings, and free cash flow. The operating and net income grew roughly 300%, with operating cash flow up 85%, FCF at $50 billion TTM (reversing a loss in the previous TTM period), and earnings of $0.98. The $0.98 may not be directly comparable due to Leap Year, but it is up 200% YOY and $0.15 above the consensus. Guidance is also favorable, with revenue growth expected to hold steady in the high single- to low double-digits.