There’s a lot of economic pain in the United States these days, but you wouldn’t know that from looking at Amazon (NASDAQ:AMZN). The real question, however, is how does Amazon stock build on its momentum?
Just look at the numbers. While the S&P 500 is down 3.4% so far this year and the Nasdaq composite is showing an 8% gain, Amazon stock is up a whopping 35% on a year-to-date basis.
That growth happened as the U.S. economy collapsed at a historic pace, with another 1.9 million people applying for unemployment benefits last week. In total, 21.5 million have filed jobless claims this spring.
The reason why Amazon is bucking the trend, of course, is simple.
While the U.S. and global economy took a beating at the hands of the novel coronavirus, Amazon is one of those rare companies that was perfectly positioned to profit from an extended period of social distancing and staying at home.
The Covid-19 pandemic meant closed stores and forced people to do their shopping online. And as Amazon has the biggest share of the e-commerce space in the U.S. — about 44%, according to Bank of America — Jeff Bezos’ powerhouse capitalized in a big way.
Amazon had to hire 175,000 temporary warehouse and distribution workers just to keep up with the incredible demand, and last week announced that it would keep 125,000 on a permanent basis.
Amazon’s powerful AWS product is also another key profit center that ties into Amazon’s pandemic growth. Amazon Web Services does everything from analytics to Internet of Things (IoT), machine learning and complex business applications.
As more people stay at home because of pandemic fears, the more they use the internet for everything from commerce to business and entertainment. All of that ties into Amazon’s strengths, which is why AWS brought in $10.2 billion for Amazon in the first quarter, a 33% year-over-year increase.
What’s Next for Amazon?
That’s the big question. Amazon has a load of momentum, but it will be a challenge for it to continue its current rate of growth.
That’s a concern echoed by BTIG analyst Julian Emanuel, who expressed concerns about Netflix, Amazon, Moderna (NYSE:MRNA) and Zoom (NASDAQ:ZM): “We’d suggest that the ability for the broad market to build on its recent gains is contingent on names like Zoom, Moderna, Netflix and Amazon and other highflying ‘shelter-in-place’ names whose momentum has waned in recent days, to at least sustain their meteoric advances as leadership passes off to the more cyclical areas and themes.”
On top of that, Bezos announced in the company’s first-quarter earnings call with analysts that Amazon would put $4 billion — the company’s total anticipated second-quarter profit — back into Amazon for coronavirus-related expenses, including cleaning facilities, testing employees and increased wages for employees.
I love the long-term view for keeping Amazon stock strong and the company profitable. But that kind of investment on retrenching, rather than growth, will also create some short-term growth challenges.
Bezos recognizes that, too. And he’s not standing still.
Earlier this week, the Financial Times reported that Amazon raised $10 billion in corporate debt markets, including a $1 billion bond that yields a minuscule 0.4%. That made it lowest interest rate of any U.S. corporate bond.
In addition, Bezos is investing in a digital logistics startup, Beacon. The British company is a next-generation freight forwarding and supply chain finance company that wants to find technology solutions to make supply chain logistics more efficient.
That ties directly into Amazon’s needs to make shipping products faster and more cost-effective.
The Bottom Line on Amazon Stock
Amazon may have a hard time replicating its Q1 performance and growth for the rest of the year, but that doesn’t mean the company is no less of an incredibly valuable growth stock for your portfolio.
Amazon’s stock continues to be a strong buy in my Portfolio Grader, where it gets an ‘A’ grade right now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.