Amazon (NASDAQ:AMZN) stock is stuck in a trading range at the $1,800 level. A big AWS contract loss to Microsoft (NASDAQ:MSFT) undermines its dominance in the cloud computing space. Conversely, the e-commerce giant is entering a seasonally strong shopping period. Any reports of unexpectedly strong sales on Black Friday and Cyber Monday may send AMZN stock higher.
Already, Adobe Analytics reported that shoppers spent $7.4 billion online. But there is more positive catalyst ahead that will help the Amazon stock price.
Amazon may prevail in a protest filed against a Department of Defense contract award. Any settlement or reconsideration for the $10 billion, 10-year JEDI cloud procurement will renew confidence in Amazon stock. Regardless of how this plays out, the company is further advancing the technology its AWS uses.
It designed a more powerful data center processor chip. By using technology from ARM Holdings, Amazon will be less reliant on Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD). That will enable the company to pick the best-performing technology at the best prices.
AWS of Strategic Importance
Advancements in AWS do not stop at the hardware level. Amazon will keep to its road map and will roll out great services that customers are looking for. And it has $27 billion in future commitments for AWS, up 54% from last year. So, investors will need to watch AWS growth over the long term, not just the short, to appreciate its overall contribution to the company. For example, in the third quarter, costs related to sales and marketing had a negative impact on the AWS segment. But if capital lease or equipment lease costs are excluded, the unit grew 30% on a trailing 12-month basis.
Pricing pressures may hurt the AWS business but the company is competing beyond prices. Although it will lock in long-term contracts with customers to book steady revenues, it will keep creating new services at competitive prices.
Growing Moat in e-Commerce
Amazon’s one-day shipping is differentiating its e-commerce business from the competition. Target (NYSE:TGT) only offers in-store pick-up while Walmart (NYSE:WMT) is still losing money operating its online business. Meanwhile, Amazon’s made rapid progress with its one-day shipping.
For the current Q4, one-day shipping will add a $1.5 billion penalty over last year on shipping costs. But the expanded transportation capacity and cost of deploying inventory closer to customers will pay off. Customers will grow accustomed to the one-day shipping and will bring more of their business to Amazon.
Amazon increased headcount to 100,000, up 22% Y/Y. It is committed to investing in its technology team and to the fulfillment and transportation roles. And for the holiday period, it is hiring 200,000 people, twice the number of workers it hired last year. This increased hiring signals that the e-commerce company expects prosperous business growth in the holiday period.
Just as Roku (NASDAQ:ROKU) grew its subscription base through device sales and including the Roku OS on flat-screen TVs, Amazon is doing the same with Fire TV. It introduced 20 Fire TV products. This includes the soundbar and Fire TV Cube. And with Roku’s rich valuations fueled by viewership growth, Amazon Prime should enjoy the same valuations over time. The streaming war is still in the early phases. Disney+ and Apple TV+ will pressure Netflix (NASDAQ:NFLX). But for Amazon, it is business as usual. Consumers who subscribe to Prime get free shipping and other discounts on the e-commerce site. Getting music and streaming content is just a bonus.
Your Takeaway on Amazon Stock
The Amazon stock price is poised to break out of the $1,750-$1,800 trading range. If Black Friday sales come in far stronger than expected, investors will bid AMZN stock higher. The upcoming Christmas holiday period is another positive catalyst that might help the company report better revenue growth this year.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.