Amazon: A Post-Earnings Drift Candidate

The Benefit of Trading Stocks Post-Earnings

While many amateur investors play ‘earnings roulette’, savvy investors understand that waiting until after an earnings report can often be more powerful. Below are three reasons why:

·       You avoid binary event risk: Corporate earnings are notoriously hard to predict. Additionally, even if earnings were highly predictable, the reaction to these earnings isn’t. By waiting until after earnings, investors can eliminate binary, ‘coin flip risk.’

·       Forward guidance clarity: Investors can get a clear view of earnings and forward guidance before risking their hard-earned capital.

·       Post-earnings drift: When a company reports a bullish earnings report, price tends to continue to drift higher after the initial burst as institutional investors jockey to get positioned.

Amazon: A Post-Earnings Drift Set Up

Until its earnings report last week, Zacks Rank #1 (Strong Buy) stock Amazon (AMZN) had been stagnant for more than a year. However, on Friday, July 31^st AMZN shares jumped more than 15% as volume jumped 150% above the 50-day average. The massive price gap and subsequent tight consolidation is a hallmark sign of a pos-EPS drift set up. The price spike shows accumulation while the bull flag shows that investors with a profit are unwilling to part with shares.

Image Source: TradingView

AWS Reaccelerates

Investors applauded Amazon’s earnings report mainly due to Amazon Web Services results. AWS revenue jumped 37% year-over-year to $42.2 billion, beating Wall Street expectations of $40.54 billion. This marked the fasted quarterly growth for the cloud unit in 18 quarters. The AWS news is especially bullish because it is Amazon’s most profitable business segment.

Massive AI Backlog

Although Amazon’s capital expenditure (CAPEX) spending guidance soared to $220 billion, it backed by a massive backlog. CEO Andy Jassy revealed that AWS has a backlog of nearly $500 million and the company will be unable to meet soaring customer demand through 2028.

Renewed Growth and Reasonable Valuation

Zacks Consensus Estimates suggest that Amazon will grow its EPS by a robust 82.15% in 2026.

Image Source: Zacks Investment Research

Meanwhile, AMZN has a PEG ratio of ~2x, making it the cheapest it has been in years.

Image Source: Zacks Investment Research

Bottom Line

Amazon’s recent earnings breakout is likely just beginning as AWS experiences renewed growth and AI demand soars.

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This article originally published on Zacks Investment Research (zacks.com).

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