New Amazon Price Target After $25 Billion Anthropic Update
Shares of the Big Tech giant are at a crossroads.
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By now, I am sure that most of you have read the news. On Monday afternoon, Amazon (AMZN) announced that the firm would invest a cool $5 billion in AI startup Anthropic and make plans to invest an additional $20 billion in the years ahead.
Keep in mind that Amazon had already invested $8 billion in Anthropic. What gives? Anthropic, in return for the up-front dough, will commit to spending more than $100 billion over the next decade on Amazon Web Services.
This partnership will provide Amazon's cloud/AI-focused clientele with access to the full Anthropic-native "Claude" platform while Anthropic commits to running its large-language models on Amazon's Trainium chips and Graviton CPUs for a decade. For those unaware, Trainium chips are Amazon's custom-made AI accelerators focused on mathematics and parallelism. Each single chip contains multiple Neuron cores, and enhances the ability for generative, large-language-based artificial intelligence to make the leap to an actual agentic form of artificial intelligence capable of inference and reasoning.
Graviton is Amazon's most advanced custom CPU and is said to deliver 40% better price performance than comparable x86 processors. Trainium, Graviton and Nitro (Amazon's chip that enables confidential computing) together, are expected to generate more than $20 billion in annualized revenue for this year, which would amount to triple-digit growth in percentage terms.
Yes, this does make Amazon, in some way, a player in markets already dominated by Nvidia (NVDA) , Advanced Micro Devices (AMD) and Intel (INTC) .
Amazon to Report
Amazon is set to release the firm's first quarter financial results next week, on Wednesday afternoon after the closing bell. For the period, Wall Street is looking for a GAAP EPS of $1.65 on revenue of roughly $177.2 billion. Should the actual results look like these numbers, this would compare to $1.59 for the year-ago period, while reflecting year-over-year growth of almost 14%.
Interestingly, Wall Street does not at all appear to be that confident in Amazon's quarter. Of the 46 sell-side analysts that I know to track Amazon, 23 have revised their earnings estimates lower since the start of the period, while just four have revised those numbers higher. Nineteen of these analysts have left their own estimates unrevised.
Going into the event, Amazon is trading at 31-times forward looking earnings and 34-times trailing 12 months' earnings despite not having experienced annual revenue growth of 20% or greater since Q2 2021. Less than 15% of the entire float is held in short positions. This is one of the names I had to liquidate going into the implementation of my divorce settlement. The shares have experienced a nice rally that came after a nasty sell-off.
Is it time to get back in for me, or add, if still in the name? Let's go to the chart.
Amazon Shares Come to a Crossroads
Readers will see that Amazon's February sell-off developed into a double-bottom pattern of bullish reversal with a $220 pivot. That gave the shares the rally you've seen since.
Relative strength has been into technically overbought territory for almost two weeks now. The daily MACD is postured quite bullishly. Within that indicator, the histogram of the nine-day EMA is well into positive territory as are both the 12-day EMA and 26-day EMA. The cherry on the top is the fact that the 12-day line is running above the 26-day line which is a good sign for the bulls.
Take a Look at This
If one steps back and takes another look, AMZN has built a flat base or giant rectangle that goes back the better part of a year. The top of that rectangle, which is the $259 high of early November, is the new pivot. While there is some risk of a double-top pattern of bearish reversal taking hold should that pivot provide resistance, there is also a chance for a re-energized breakout.
What Am I Doing?
I'll be re-initiating this name on the long side after this article becomes public information. I will start small with an intent to rebuild this name into its top-12 or so place in the old Sarge-folio. My new target price will be $310.
Related: How Much Upside Can Remain for a Market That's Afraid to Sell?
At the time of publication, Guilfoyle had no positions in any securities mentioned.
