Almost a month ago, Amazon.com (NASDAQ:AMZN) issued a disappointing earnings report, but AMZN stock continues to trend lower. The market continues to absorb the prospect of slowing growth.
Add back heightened macro-related worries among investors as ‘stuck inflation’ points to a further rise in interest rates and it makes sense why the AMZN’s slide has continued in recent weeks.
Worse still, operational performance improvements may not be around the corner. Rather, Amazon could disappoint again when it releases its next quarterly results in a few months. While the downside risk is moderate in a worst-case scenario (a potential retest of the stock’s 52-week low), the upside potential of the near-to-mid yield remains cloudy.
Even a partial recovery could prove difficult. It’s still a bad time to buy or take a position, so it’s best to wait and see Amazon for now.
More disappointment, lower prices?
In the past few weeks, Wall Street analysts have once again scaled back earnings expectations for this and the next quarter after the above-mentioned quarterly results from Amazon.
The sell-side consensus ahead of earnings called for the tech giant to report earnings per share of 29 cents in the first quarter of 2023 and 41 cents per share in the second quarter. After the gains, the consensus for the March and June quarters fell to 21 cents and 35 cents, respectively.
Unfortunately, the forecast adjustments made by the analyst community may not fully reflect the extent to which results continue to fall short of expectations. Or the risk that results won’t improve dramatically later this year or next year. This of course puts AMZN stock at risk of further downward pressure.
Amazon’s e-commerce division isn’t the only one feeling the effects of the current economic downturn. The company’s AWS cloud computing unit, its true profit center, is also experiencing a growth slowdown. Not to mention the specter of increasing competition from its main cloud computing competitor.
A new competitive threat?
Since early 2023, there’s been much talk about Microsoft’s (NASDAQ:MSFT) big move into artificial intelligence. In recent coverage of Google parent company Alphabet (NASDAQ:GOOG) (NASDAQ:GOOG), Microsoft’s partnership with ChatGPT developer OpenAI poses a major threat to Alphabet’s core business.
However, it’s not just GOOG stock that could lose if Microsoft gains ground in the AI space. AMZN stock could also lose. How come? Microsoft’s AI efforts aren’t limited to its recent integration of AI-powered search capabilities into its Bing search engine platform. Microsoft is also integrating more AI technology into its Azure cloud platform.
For example, Azure is now offering AI-powered services to the telecom industry. This could help increase Azure’s telecom market share at the expense of AWS. Sure, this is just a consumer market. This latest development doesn’t signal that AWS will remain in the dust.
Still, it underscores how important it is for Amazon to keep up in the “AI arms race.” If it doesn’t, AWS’s growth rate could slow even more worryingly than it is currently.
Right now, there’s little sign that the “tech slowdown” affecting e-commerce, cloud computing, and digital advertising (another high-margin segment for Amazon) is about to end.
Given issues like the potential of Microsoft’s Azure to become a major competitive threat to AWS, the company’s operational performance would deteriorate before it begins to improve.
Again, I don’t think this will necessarily go down on Amazon. However, it is clearer than ever that this tech behemoth is not unsinkable. As with any other large, established company, its performance depends on the overall economic conditions and its ability to keep up with technological advances.
Until management reports a more optimistic outlook or demonstrates that the company is not falling behind in the AI space, even a partial recovery for AMZN stock will remain out of reach.
AMZN stock is rated F in the Portfolio Grader.
At the time of publication, Louis Navellier held GOOG and MSFT. Louis Navellier had other positions (neither directly nor indirectly) in the securities mentioned in this article.
The InvestorPlace researcher primarily responsible for this article has had no position (directly or indirectly) in the securities mentioned in this article.