Amazon (NASDAQ:AMZN) stock is one of the most closely watched names this Q2 earnings season. As a core member of the Magnificent 7 and a powerhouse in both e-commerce and cloud computing, Amazon offers key insights into broader economic trends, from consumer sentiment to momentum in the AI space. That’s why all eyes will be on the company’s quarterly results, set to be released Thursday, July 31, after the market closes
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Against this backdrop, how should investors be positioning ahead of the report? One investor, known by the pseudonym Hunting Alpha, believes that a more measured approach is warranted at this stage.
“AMZN stock is attractively valued but that is insufficient to make me a buyer ahead of the Q2 FY25 earnings release,” explains the investor.
Hunting Alpha is not convinced that retail data for Amazon will outpace expectations by all that much, nor is the investor all that gung-ho regarding the company’s recent 4-day Prime Day extravaganza. In fact, while overall revenue might be increasing, the investor expects the growth deceleration in commerce sales to continue this quarter and into the future.
When it comes to AI, this one is a bit of a double-edged sword for Hunting Alpha, at least for now. On the one hand, “AI-driven efficiencies” should lead to margin improvements, which the investor predicts will be in the 50% range. On the other hand, Hunting Alpha believes that Amazon is still firmly in the spending stage, and the investor expects the company to increase its quarterly capex to ranges north of $30 billion, eroding free cash flow margins.
“Whilst I am confident that generally these higher capex spends on AI technology infrastructure is a good move, I think the risks may be understated and not discussed enough,” adds Hunting Alpha.
From a valuation standpoint, AMZN’s 1-year Forward Price-to-Earnings multiple of 36.4x sits just 5% above its peer group average – a notable shift from the 41% premium it has historically commanded, the investor points out. Even so, the mix of positives and potential headwinds leaves Hunting Alpha hesitant to make a definitive call.
“I prefer to wait for more clarity before turning bullish again,” sums up Hunting Alpha, who is assigning AMZN a Hold (i.e. Neutral) rating. (To watch Hunting Alpha’s track record, click here)
Wall Street, in contrast, is fully onboard the Amazon express. With 44 Buys and a single Hold, AMZN boasts a Strong Buy consensus rating. Its 12-month average price target of $259.39 suggests an upside of ~12% from current levels. (See AMZN stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.