Amazon's Earnings: What Comes Next and How to Play It

Key Points

• Strong beats on the headline numbers weren't enough to send the stock popping after last night's report. 
• The profit-taking seen in the after-hours session could turn into a full correction if momentum breaks.
• Two clear plays off the back of this are emerging, depending on your risk appetite.

Shares of tech giant Amazon.com Inc. NASDAQ: AMZN finished Thursday's session up nearly 2%, only to tumble more than 6% in after-hours trading following the company's Q2 earnings release. This sharp reversal underlines just how high expectations had gotten after the 40% rally from April's low. 

The stock's multi-month move meant anything less than a near-perfect report risked triggering a wave of profit-taking, and that appears to be exactly what's happening already. As we'll see below, however, this is also creating a couple of interesting plays for investors to consider depending on their belief in Amazon's potential over the long run, and their near-term appetite for risk.

Let's jump in and take a look. 

The Report Looked Good, But It Had to Be Great

At first glance, Amazon seemed to deliver. The company's earnings per share came in more than 25% above expectations, while revenue was up 13.3% year-over-year. Both metrics landed hot and were well above analyst expectations, adding to Amazon's impressive track record of delivering strong headline numbers quarter on quarter. 

But investors weren't satisfied based on the after-hours price action. As anticipated earlier in the week, any sign of weakness in last night's report could send the bulls running and the bears raging. And Amazon's weaker-than-expected guidance for operating income and some free cash flow concerns seem to have done just that. 

The range shared by management on the former was notably conservative, while the latter figure is now at its lowest in two years. In that context, it's perhaps not all that hard to see what investor sentiment would swing from risk-on to risk-off so quickly.

It remains to be seen how long this switch will last, but in our view, there's little to be worried about regarding Amazon's long-term potential. 

What the Market Might Be Missing

While the overnight sell-off might feel sharp, it's also arguably overdone. This was still an impressive report for Amazon, with revenue growth accelerating across the board and profitability improving at the same time. Overall growth remains strong despite ongoing infrastructure investments and competitive pricing pressures. 

The bears will point to growing concerns around the company's ability to stay in the lead group of the artificial intelligence (AI) arms race, but CEO Andy Jassy was not overly concerned. He spoke about this on the post-earnings conference call, saying, "I don't believe that we will have fully resolved the capacity we need for the amount of demand that we have in a couple of quarters. I think it will take several quarters, but I do expect that it's going to get better each quarter". 

Taken in total, there's a strong case to be made that Amazon is still in the early innings of its next growth phase, and Thursday's after-hours drop is more about positioning than fundamentals.

2 Ways to Play It

For those of us on the sidelines, what kind of plays should we be looking for? Option one might be to sit back and let the correction play out. A move down to around the $220 level would take the stock back to a key area of support, and, given how one-directional the recent rally has been, would actually be quite healthy. 

If that $220 level were to hold, and or if we were to see a fresh bullish crossover in the MACD, it would likely mark the start of the next leg higher. Waiting for confirmation here gives you better risk/reward and protects against a deeper pullback.

The other option is to start accumulating right away. This argument rests on the idea that Amazon's core thesis remains intact and the bears' concerns are already, or at least close to being, priced in after last night's drop. For big-time believers and long-term investors, this dip could be a gift - especially considering the company's strength across multiple verticals and its growing strength in high-margin, AI-driven businesses.

Remember, multiple firms have been reiterating their Buy and Overweight ratings all through 2025, and even as recently as this week. The most recent price target from the team over at UBS Group sees the stock trading north of $270, a move that points to additional upside of around 15% from current levels. Don't expect their bullishness, and that of their peers, to change anytime soon.