Amazon.com, Inc. (NASDAQ:AMZN) was among big-cap tech stocks that were smashed lower on Friday after Goldman Sachs popped the sentiment bubble with a bearish note warning of a valuation air pocket. AMZN stock finished the day down more than 3%, and in precarious position.
This followed a separate note by Bank of America Merrill Lynch warning that active large-cap funds had increased their exposure to tech by the largest ever, exceeding the extremes of the dot-com bubble.
The result was the worst one-day decline in the narrow group of stocks at the center of attention in months. This included Amazon stock, which recently closed above the $1,000-per-share level, to much fanfare.
AMZN stock ended the day in triple digits, down 3.2% — the largest one-day decline since February. Perhaps more jarring? Amazon suffered a “flash crash” event intraday that was indicative of limited volume and price fragility that saw a low print of $927 — a decline of 8.2% from Thursday’s close.
Stomach-churning stuff.
The drop, as shown below, violated the 50-day moving average for the first time since March.
Goldman warns that the big-tech stocks — specifically the new FAAMG stocks, which include Facebook Inc (NASDAQ:FB), Amazon, Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Google parent Alphabet Inc (NASDAQ:GOOGL) — have been piled into as a result of rising momentum. The gap between momentum winners (like AMZN) and losers has widened to the largest extent since early 2016 ahead of the last major market downturn.
It’s also worth noting just how extended Amazon’s valuation has become, in case anyone out there still actually cares about the fundamentals. Here are a few harrowing stats:
- AMZN stock is trading at 90 times forward earnings estimates, as opposed to an average multiple of 58 for the core dot-com bubble stocks back in 2000.
- Free cash flow margin stands at 7% for AMZN vs. 19% for the dot-coms in 2000.
- Return on invested capital stands at just 10% vs. 16%.
Amazon also has a disappointing report in its rear-view that investors can now agonize over as they deal with the fallout from Goldman’s call. If you remember, on April 27, AMZN issued tepid forward guidance looking for Q2 operating income of between $425 million and $1.075 billion vs. the $1.48 billion analysts were expecting.
Amazon’s next shot of redemption isn’t for almost two months. When the company reports on July 27 after the close, analysts will be looking for earnings of $1.45 per share on revenues of $37.16 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
