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Headlines
- Market Performance: The "Magnificent 7" tech stocks, including Amazon, have seen a downturn amid broader market concerns about valuations.
- Amazon's Position: Amazon's stock has dropped 9.7% from recent highs, nearing correction territory, partly due to overall tech sector volatility.
- Q2 Earnings Expectations: Analysts anticipate Amazon's Q2 revenues to rise 10.6% year-over-year, with a notable expected increase in EPS despite lower-than-expected revenue growth guidance from the company.
The tech sell-off has continued into this week, and the large-cap tech companies that led the market rally from the front in the first half of the year have looked weak. In particular, the “Magnificent 7,” which collectively account for a disproportionately high share of the S&P 500 Index ($SPX), have looked to be on shaky ground.
Among the elite group, Tesla (NASDAQ:TSLA), Alphabet (GOOG), and Microsoft (NASDAQ:MSFT) have released their earnings so far, and all saw declines after their respective reports—with TSLA experiencing a significant drop. This week, three other "Magnificent 7" stocks—Meta Platforms (META), Amazon (NASDAQ:AMZN), and Apple (NASDAQ:AAPL)—are set to release their quarterly reports. Amazon's stock is down 9.7% from its recent highs, approaching the correction zone. In this article, we’ll explore why Amazon's stock has been declining and whether the company’s Q2 earnings report could help the e-commerce giant regain momentum.
Why is Amazon Stock Going Down?
It's important to note that Amazon is not alone in experiencing a decline, as tech stocks across the board have fallen. There have been ongoing concerns about the valuations of tech stocks, with recent earnings reports suggesting that some may have surged beyond their fundamentals. In this context, the correction in tech stocks appears to be a healthy adjustment, as some overvaluation had started to emerge.
Amazon Q2 Earnings Preview
Analysts expect Amazon to report revenues of $148.6 billion in Q2, representing a year-over-year increase of 10.6%. The company's revenue growth is projected to remain in a similar range for the latter half of the year.
During the Q1 earnings call, Amazon management forecasted revenue growth between 7%-11% for Q2, falling short of the 12% growth that analysts had previously anticipated. However, the market overlooked this guidance shortfall, instead focusing on Amazon's better-than-expected revenue and profit numbers for Q1. Consensus estimates currently predict a 64% year-over-year increase in Amazon’s Q2 earnings per share (EPS). While Amazon does not provide EPS guidance, it projected Q2 operating income between $10 billion and $14 billion, compared to the $7.7 billion reported in the same quarter last year.
The growth in the bottom line for tech companies has significantly outpaced revenue growth over recent quarters, driven by relentless cost-cutting measures. However, this trend may shift in the upcoming quarters as companies increase their investments in artificial intelligence (AI).
