Amazon: Why Some Are Growing Bearish, and Why They’re Wrong

Key Points

• The tech giant’s shares have been consolidating after a 30% run since April.
• Investors may be cooling on the industry, but analysts remain all in on Amazon specifically. 
• The company’s fundamentals and trend strength suggest more upside ahead.

Amazon.com Inc NASDAQ: AMZN has been moving steadily sideways for a couple of weeks after a solid rally that added nearly 30% to the stock since April’s low. The consolidation might seem like the momentum is fading, but for seasoned investors, this is often the much-needed pause before the next leg is higher. 

The tech giant’s shares are now just under February’s all-time high, while the benchmark S&P 500 index is knocking on the door of its record close. But still, there are signs that some are taking a more cautious approach when it comes to Amazon and its peers. Let's jump in and take a look at why they might be wrong.

Investors Cool on Big Tech

According to a weekend report from The Wall Street Journal, some investors are beginning to pare back exposure to big tech names, including those that make up the Magnificent Seven, with Amazon among them. It’s a familiar refrain: tech has rallied too far, too fast, and it’s looking a little frothy. 

Vanda Research data cited by the WSJ showed that retail investors' buying of Magnificent Seven stocks has dropped notably. Specifically, tech’s share of retail inflows fell from 41% in early April to just 23% by the middle of June.

Meanwhile, investors have been shifting toward international ETFs instead, which have attracted nearly 10 times the investment that tech-focused ETFs have drawn.

The Case for Staying Bullish

If you’re considering following the crowd and lightening up your exposure to Amazon, think twice, though. The company’s fundamentals remain rock solid and continue to outperform expectations. In its most recent earnings report, Amazon smashed analyst expectations across the board, with revenue from its core AWS segment jumping 17% year over year, a key indicator of growing demand.

The company is firing on all cylinders, and all signs point to another record year in the making. Despite this, the stock remains 10% below its all-time high from February, an interesting disconnect that opportunistic investors should be watching closely.

Wall Street Isn’t Backing Down

The other reason to disregard the calls for caution right now is from the analyst community, who certainly aren’t buying the bearish narrative. As recently as this past Tuesday, the team over at Moffett Nathanson was reiterating their Buy rating and hiking their price target to $253. That implies confidence not just in Amazon’s current positioning but in its ability to set fresh all-time highs in the coming weeks.

As we’ve highlighted several times in recent months, they’re far from alone. In just the past few months, Amazon has received multiple bullish endorsements from Oppenheimer, JPMorgan Chase, JMP Securities, and others, with many boosting their price targets too.

If anything, the conviction in Amazon’s potential to be a star performer this year is building.

Technical Strength Still Intact

Even if flows into big tech stocks are slowing and sentiment is starting to cool a bit, Amazon’s chart tells a different story. The stock’s uptrend has maintained its higher-high, higher-low structure, a textbook sign of bullish control. And every time it has dipped in recent weeks, buyers have stepped in quickly—a classic example of big money buying into weakness.

Since Monday alone, shares are up nearly 4%, suggesting that Wall Street may already be positioning ahead of the next move higher. This kind of price action is often a sign that a stock is coiling for another breakout.

Don’t Let the Narrative Fool You

The bearish takes are loud, and it’s smart to watch how money is flowing across the bigger picture. However, the caution is misplaced, specifically with regard to Amazon. The stock may be experiencing a natural cooling-off period, but the fundamentals, analyst sentiment, and technical trend all suggest that the story is far from over.

With fresh analyst price targets implying nearly 20% in additional upside from current levels, it’s hard to justify not getting involved right now. Far from being a stock to rotate out of, Amazon still looks like one of the best horses to bet on as we head into the second half of the year.