It was nearly a month ago that Amazon.com (NASDAQ:AMZN) released a disappointing earnings report, but AMZN stock continues to trend lower. The market keeps on absorbing the prospect of slowing growth.
Add in reheightened macro-related worries among investors, as “sticky inflation” points to a further rise in interest rates, and it makes sense why the AMZN’s slump has carried on over the past few weeks.
Worse yet, improvements to its operating performance may not be around the corner. Rather, Amazon could disappoint again, in its next quarterly earnings release a few months from now. Although downside risk is moderate at worst (a possible re-hitting of the stock’s 52-week low), upside potential in the near-to-medium return remains murky.
Even a partial recovery could prove challenging. Still an inopportune time to buy or to a position, here’s why it is best to hold off on Amazon for now.
More Disappointment, Lower Prices?
Over the past few weeks, on the heels of Amazon’s aforementioned quarterly results, Wall Street analysts have once again walked back earnings expectations for this quarter and the next.
Pre-earnings, sell-side consensus called for the tech giant to report earnings per share of 29 cents during the first quarter of 2023, and 41 cents per share during the second quarter. Post-earnings, consensus has dropped to 21 cents and 35 cents, respectively, for the March and June quarters.
Unfortunately, the analyst community’s forecast adjustments may not fully reflect the degree to which results continue to fall short. Or, the risk that results fail to dramatically improve later this year, or next year, for that matter. This of course leaves AMZN stock at risk of further downward pressure.
It’s not only Amazon’s e-commerce unit that is feeling the impact of the current economic slowdown. The company’s AWS cloud computing unit, its true profit center, is experiencing a growth slowdown as well. Not to mention, the specter of increased competition from its main cloud computing rival.
A New Competitive Threat?
Since the start of 2023, there has been much discussion about Microsoft’s (NASDAQ:MSFT) big move into artificial intelligence. In recent coverage of Google parent Alphabet (NASDAQ:GOOG,GOOGL), I’ve talked about how Microsoft’s partnership with ChatGPT developer OpenAI represents a big threat to Alphabet’s core business.
However, it’s not only GOOG stock that could lose as Microsoft gains ground in the A.I. realm. AMZN stock could lose too. How so? Microsoft’s A.I. efforts are not limited to its recent integration of A.I.-assisted search features into its Bing search engine platform. Microsoft is also integrating more A.I. technology into its Azure cloud platform.
For example, Azure is now offering A.I.-powered services to the telecom industry. This could help grow Azure’s telecom market share, at AWS’s expense. Sure, this is only one end-user market. This latest development doesn’t signal that AWS will be left in the dust.
Still, it does underscore how much of a priority it is for Amazon to keep up in the “A.I. arms race.” If it fails to do so, AWS’s rate of growth could decelerate at an even more concerning pace than at present.
Right now, there’s little indication that the “tech slowdown,” which is affecting e-commerce, cloud computing, as well as digital advertising (another high-margin segment for Amazon) is on the verge of ending.
With issues such as the potential for Microsoft’s Azure to become a greater competitive threat to AWS, the company’s operating performance would worsen before it begins to improve.
Again, I don’t think this will necessarily sink Amazon. That said, it’s clear more than ever that this tech behemoth is not unsinkable. Like any other large, established enterprise, its performance hinges on overarching economic conditions, and on its ability to keep up with technological advance.
Until management once again reports a more upbeat outlook or demonstrates that the company is not falling behind in the area of A.I., even a partial recovery will stay out of reach for AMZN stock.
AMZN stock earns an F rating in Portfolio Grader.
On the date of publication, Louis Navellier held GOOG and MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Artificial Intelligence, Cloud, Consumer Discretionary, Retail, E-Commerce, Communications, Media, Streaming, Technology