Yesterday, the stock market suffered a broad and massive loss. The Nasdaq had its worst day since 2011. And specifically, the semiconductor chip sector had its worst day since 2008.
These are serious statistics, but current macroeconomic conditions are nowhere near what they were in 2008. Company P&Ls are real and the balance sheets are very healthy. So unless we have a systemic breakdown somewhere in the world, the fear is overblown here. Yes, the U.S. Federal Reserve can go too far in the rate tightening cycle, but I don’t think they will. This is a battle of words and sentiment is suffering.
Amazon (NASDAQ:AMZN) is caught right in the middle of this. The China tariff war with the U.S. is serious, but I believe that the AMZN stock team can navigate the challenges well.
Fundamentally, the stock has always been expensive but it has earned the premium well. This is a company that is in perpetual startup mode. Moreover it uses his own cash to grow and had a profit. So it’s the best of both worlds; it has growth and profitability. And therein lies the opportunity.
There will be a major reset in Amazon’s earnings that will soon surprise Wall Street. The phenomenon known as “Alexa” will bring it.
Focus on AMZN Stock
The Concept: Almost every aspect of our lives will be voice activated in the next few years and Amazon has the first-mover advantage there.
We recently heard about a new voice-activated microwave. More recently there will be a voice function on a trading platform. This is a trend that will be parabolic.
The Reward: The profits from voice licensing deals like these will flow freely to the bottom line because they usually don’t come with major incremental costs. And if they do, the cost is shared or completely covered by the other side of the deal.
Since these revenues flow freely through the P&L, AMZN stock will be higher in the future than now.
Technically, the stock took a beating of late but it is still up 50% this year. It reports earnings today, so risking $1,700 per share right here sounds crazy — but I bet it is a good starting point for a long-term position.
The short-term reaction to every earnings event is always binary. We don’t know what management will say or how investors will react. So I don’t go all-in into a stock just before its earnings, but I can start the position now as a viable long-term investment thesis.
There are legitimate risks to the economy. Home sales are slowing down as rates rise. Auto sales are also under pressure. But the demand for tech and tech services are still sharply rising. Amazon has a strong foothold on delivery for all of it.
AMZN is not a one-trick pony. It dominates the global use of the cloud with its AWS and everybody else is playing catch-up. It is just starting to ramp up its advertising arm and that is a cash cow — just ask Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). It will also eventually be a strong competitor to Netflix (NASDAQ:NFLX) in online streaming.
So the future is very promising for this game-changing company. Amazon under the leadership of Jeff Bezos is a proven winner and will continue to be so.
This short-term crisis of sentiment in the equity markets shall pass, and soon, for Amazon stock.
Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
