Amazon Enters Correction Zone: Time to Panic or Be Brave?

Key Points

• Amazon shares sank 8% after its earnings last week, and slid another 1.4% Monday.
• The stock’s RSI is already nearing oversold levels while analysts are boosting their price targets.
• Investors have to ask themselves if this is a good entry opportunity or the start of a downturn.

Tech giant Amazon.com Inc NASDAQ: AMZN delivered one of its better headline beats in last week’s earnings report, yet the stock has shed 10% in just two sessions. The swift drop follows a stunning 45% rally from April’s low, a run that left little room for anything short of perfection. 

With the broader market refusing to be dragged down by Amazon, a rare and notable divergence, those of us on the sidelines need to ask ourselves some important questions. For example, is this simply a much-needed bout of profit-taking, or could it be the start of a much deeper shake-out? And depending on how you feel about it, is now the time to panic or the time to be brave? 

What’s Behind the Drop?

Let’s start with the fundamentals. There’s no escaping from the fact that Amazon’s headline results last week hardly read like a company in trouble. Revenue rose double-digits year-over-year and topped Wall Street’s forecast by a comfortable margin, while earnings per share were 25% higher than expected.

There were also plenty of other bright spots under the hood, such as its much-watched AWS business, which showed encouraging signs of cloud demand continuing to grow.  

However, management’s cautious guidance for operating income seems to have spooked investors. The midpoint fell a shade below consensus, and after a nearly vertical four-month ascent, many of Amazon’s bulls seem to have seized the excuse to lock in some of their gains. 

Reasons to Feel Brave

This is even though almost all analysts covering Amazon have reiterated bullish outlooks in the aftermath of Thursday’s report. The teams over at Goldman Sachs and Cowen did just that, for example, on Friday, as did BMO Capital Markets, the latter even boosting their price target up to $280.

From the $212 level, Amazon closed just below on Monday, which points to a targeted upside of some 30%; not bad for a $2.2 trillion company. 

The analysts are mostly united in their praise for Amazon’s steady retail profit growth, its shift toward higher-margin advertising revenue, and an increasing potential for AI-driven efficiencies. These positive factors are expected to persist for some time, and investors should capitalize on them. 

Key Levels and Signals to Watch

Technically, the stock has already met the textbook definition of a correction, sliding 10% from its recent high. The relative strength index now hovers in the mid-30s, just above the extremely oversold threshold, a territory it has not visited since early spring. 

Simultaneously, it’s also now trading at a decent support level around the $210 mark, an area where dip-buyers stepped in during June, adding to the sense that this could be a prime entry point. If this level were to hold through this week, we could look at a clean signal that the worst of the shake-out is done.

Reasons to Be Cautious

Yet it has to be said that Amazon’s post-earnings sell-off continued yesterday even as the S&P 500 logged one of its better days in weeks, a rare divergence that hints at real money leaving the table.

That absence of dip-buyers could well mean institutions want to see some consolidation before redeploying capital, and indeed, it’s hard to argue that a cooling-off period isn’t needed, even if it feels painful. 

The bears will also point to management’s heavier spending plans on artificial intelligence and infrastructure and ongoing concerns about Amazon’s broader vulnerability.

If the macro backdrop wobbles, for example, or we see increased tariff uncertainty or a consumer soft patch, this profit-taking could quickly become more structural. 

Considering Your Next Step

However, keep in mind that Amazon’s report showed some real revenue momentum for last quarter, their margins are in good shape, and their AWS franchise remains pretty dominant among its competitors. The market’s reaction looks more like a healthy reset than a full reversal, for now at least. 

Whether you’re stepping aside for a clearer technical signal or are starting to build a position now, the real question is whether Amazon’s long-term growth machine has changed—for most analysts and many seasoned investors, the answer is a confident no.