It wasn’t too long ago that we were debating the case for Amazon (NASDAQ:AMZN) at $2,000 per share. When Amazon stock first hit $2,000, it tumbled rather quickly before eventually picking up. Now, AMZN breached the $3,000 barrier for the first time, securing CEO Jeff Bezos’ place as the richest person in the world.
But will we see another repeat of the e-commerce behemoth poking its head above a key technical benchmark, only to disappoint those with a strong case of FOMO (fear of missing out)? This is a possibility, which I’ll discuss later. But to cover the motivations of prospective buyers, this time could be different because, well, it is different.
Unlike the last benchmark-busting move to $2,000, Amazon stock didn’t rise exclusively on its underlying fundamental strengths. Instead, it blitzed its way to the top because in my opinion, there is no other company that was better positioned to benefit from the pandemic.
If was a conspiratorial, Alex Jones-watching nut-job, I’d say that Jeff Bezos engineered the novel coronavirus. This crisis is almost too perfect for the all-powerful, all-disrupting technology firm.
Everywhere you look, Amazon stock benefitted from the new normal. First and foremost, stay-at-home orders and social distancing guidelines placed a premium on contactless services. What do you think Amazon.com is?
Of course, we saw a massive surge of demand for groceries and other essentials. In this case, Amazon’s acquisition of Whole Foods Market, along with the development of food-delivery services, now are incredibly prescient.
As well, you can’t forget corporate America’s rapid transition to remote work. Here, cloud computing – which was already invaluable – became even more relevant.
Amazon Stock Is Now Just a Matter of Price Preference
According to one survey, more than half of Amazon’s shoppers have a net worth of over half-a-million dollars. It’s not at all an unreasonable statistic. In 2017, Goldman Sachs estimated that the average age of its customer base was 37 years.
Factor in that AMZN caters to tech-savvy individuals who may not have time to go shopping in person due to their busy schedule and you can see how this company would have the lion’s share of the upwardly mobile.
In this sense, Amazon stock is akin to Costco Wholesale (NASDAQ:COST). According to a CNBC report last year, the average Costco member makes close to six figures. Not surprisingly, throughout this crisis, Costco saw huge lines form in the wee hours of the morning. When you have a compelling brand, nothing short of an apocalypse will crater your demand.
But does that mean investors should buy Amazon stock at $3,000? It’s a complicated matter.
For example, one of the other reasons why AMZN popped higher is stronger-than-expected economic data from China. Obviously, many of the goods that people buy are made in China. Therefore, when the source of manufacturing is robust, it’s reasonable to expect at least some trickle-down effect.
But in this case, investors should be careful. Yes, the world’s second-biggest economy has more or less engineered a V-shaped recovery. But as Deutsche Bank’s chief economist and head of research for Asia Pacific, Michael Spencer warns, no economy operates in a bubble. Thus, the weaknesses seen elsewhere in the world will likely negatively affect China.
If that’s the case, I probably wouldn’t buy Amazon stock at these record levels. Don’t get me wrong – I think the long-term narrative is decidedly bullish. But if you want more immediate rewards, you should look elsewhere.
AMZN Is a Vice Play
To summarize, I very much like Amazon stock if time was no consideration. But it always is. Like the $2,000 benchmark, I would be surprised if AMZN kept moving higher.
But the one caveat I have about my nearer-term pensiveness is the coronavirus. If this nasty bug continues to worsen, that will imply major disruption across various industries. Many states are now pausing or rolling back their reopening protocols, which bodes well for Amazon stock.
Such pressure could be untenable for traditional discretionary retailers like Macy’s (NYSE:M). Moreover, the rolling back is a fierce headwind for movie theaters. In both cases, Amazon benefits through its core e-commerce business and its Amazon Prime Video streaming service, respectively.
On the technological front, AMZN is again a beneficiary, as companies are incentivized to keep their employees working remotely. No doubt, managerial leaders will be using this “downtime” to seek out the best cloud computing platform, where Amazon will invariably soak up market share.
And that means Bezos will only add more Benjamins to his pocketbook while the competition (across multiple relevant industries) die a slow, painful death. Isn’t that how capitalism works?
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.