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Despite a so-so fourth quarter, the bulls are still supporting Amazon (AMZN) amid a risk-off move in the Magnificent 7.
"There's two reasons specifically that I would call out ... The first one is Amazon Web Services [sales] number in the fourth quarter was essentially in line with expectations, despite the fact that Azure AWS is facing near-term capacity constraints," Morgan Stanley managing director Brian Nowak told me on chof360 Finance's Opening Bid podcast (video above; listen in below).
"The second opportunity, and I think that the largest misunderstood opportunity when it comes to Amazon is all of their generative AI investments they're making on the retail business. The company did a really good job at laying out all the improvements they're making to their suggestion algorithms, to their advertising products through new diffusion models, the way in which their inventory management is getting better, the way in which they're integrating robots."
The stock could grind higher as investors price in an improved margin outlook for the retail business, Nowak said.
Amazon's fourth quarter had several bearish points, which weighed on the stock — shares fell 4.1% on Feb. 7, the morning after earnings. But the stock has since found firmer footing.
About those bearish points.
First, Amazon's first quarter outlook came up short.
Amazon guided to first quarter revenue of between $151 billion and $155 billion. Analysts were anticipating $158 billion; the miss was partially due to a $2.1 billion expected hit from currency fluctuations.
chof360 Finance data shows analysts have since settled into a first quarter revenue range for Amazon of $153 billion to $158 billion.
Second, similar to Microsoft (MSFT) and Meta (META), Amazon unveiled a whopper of a capital spending guide.
It sees $104 billion in capital expenditures this year, well above analyst forecasts at the time of $80 billion to $85 billion.
And lastly, Amazon Web Services (AWS) sales cooled a touch to a 19% year-over-year growth rate. The result was consistent with cloud growth slowdowns at the likes of Microsoft.
Perhaps initially overlooked was that Amazon had a good quarter overall.
AWS posted its third straight quarter of 19% sales growth. Margins for the cloud services business rose to 46.9% from 29.6% last year. And Amazon delivered its highest quarterly operating income ever at $21.2 billion.
Nowak tells me he sees two near-term catalysts for Amazon's stock.
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