Amazon shares may move 8% on Q3 earnings

Amazon is set to unveil its Q3 earnings after US markets close today (Thursday, Oct 26th).

This is the latest after a slew of Big Tech companies (Alphabet, Microsoft, Meta, etc.) already released their respective financial numbers, with mixed results.

For Amazon’s announcement specifically, markets want to know:

1. whether its cloud-computing unit, Amazon Web Services (AWS), is on a path to recovery after hitting a record low for sales growth back in Q2 2023
    
2. how well the company’s cost-cutting exercises have improved the profitability of its core business (online shopping)

Amazon’s Q3 earnings: Key figures

Here are the analysts’ forecasts for some of Amazon’s key financial figures due later today:

• Revenue: US$ 141.56 billion
   
• Earnings per share (EPS): 58c
   
• Operating income: US$ 7.71 billion

Also, note that Amazon’s operating income is forecasted to break above US$ 8 billion (US$8.7B) for the first time ever in its history this quarter (Q4 2023)!

NOTE: Q4 2023 earnings set to be announced in late-January 2024.

Hence, its share prices are bound to reflect the optimism, or pessimism, reflected by Amazon’s top management today whether the company’s earnings is on track to achieve such a record.

Look to the Cloud

Amazon’s forward guidance on AWS earnings will arguably have the biggest influence over its share price reaction for the rest of this week.

This is a key sector for Big Tech, given all the fevered expectations surrounding artificial intelligence.

Just look at how Alphabet’s stocks plummeted 9.5% yesterday (Wednesday, October 25th) after it disappointed investors with a lower-than-expected profit for its cloud computing unit, Google Cloud.

Amazon bulls (those hoping this stock will move higher) need to know whether the company can keep asserting its superior lead in cloud infrastructure, while fending off second-placed Microsoft’s AI-fuelled growth in this space.

Amazon’s earnings to also influence broader stock markets

The S&P 500 has followed Amazon’s shares in the same direction 83% of the time over any given 5-day period in the last 10 years.

This positive correlation (both assets/instruments moving in the same direction) is even stronger with the tech-heavy Nasdaq 100 index at 93%.

Amazon’s market cap is now US$ 1.25 trillion as of market close on Wednesday October 25th.

Amazon’s heft and influence on broader stock indices is undeniable given its membership within the “Trillion-Dollar club”, alongside Apple, Microsoft, and Nvidia (even though Apple and Microsoft each boast of market caps exceeding US$ 2 trillion respectively).

In short, where Amazon’s share prices go, broader stock indices tend to follow as well.

What do Wall Street analysts currently think of Amazon’s stocks?

As things stand, Amazon has:

• 63 “buy” calls
   
• 2 “holds”
   
• 0 “sells"

SOURCE: Bloomberg survey

The median projection among these analysts also predict that this stock could rise by 42% from current levels to reach $172.29 over the next 12 months.

And today’s earnings results would greatly help determine just how much and how quickly such potential profits will become a reality for investors.

How might Amazon’s stocks react after today’s earnings?

Markets currently forecast this stock to move by 8.1%, either upwards or downwards, once US markets reopen on Friday, October 27th (the day after Amazon releases its earnings).

• If Amazon remains bullish about its earnings prospects, especially for AWS, that should help push this stock higher.
   
• But, if like Meta, Amazon’s C-suite shows concern over the darkening outlook for the global economy, that may well drag this stock lower.

Technical Analysis: Amazon on path to battling key Fib levels

After the 5.6% drop yesterday (Wednesday, October 25th), its largest single-day decline since February, Amazon's share price now rests on the 61.8% Fibonacci retracement level from its January-September climb.

• Should the post-earnings reaction materialise 8% to the upside from current levels, that would bring Amazon face-to-face with the resistance region around $131-$132. 
  
  There lies its 78.6% Fibonacci retracement line from Amazon’s peak-to-trough advance so far in 2023.
  
   
• On the other hand, if the post-earnings reaction materialises 8% to the downside from current levels, that would see this stock smashing below its 200-day SMA and testing support around the $111.65 - $113.64 zone.
  
  That price area holds the 50% Fibonacci retracement line from its year-to-date ascent.

However, such a dramatic move lower may then lead to a technical pullback, if the stock seeks to promptly recover from “oversold” conditions and return its 14-day relative strength index (RSI) back above the 30 threshold.