TradingKey - Following the quarterly earnings release and a 20% improvement in the year-on-year growth rate in Amazon(AMZN)'s total revenues to $200.6 billion, Amazon's stock value for the first time in 2023 rose 15.3% in a single day. The AWS division's revenues also improved for the first time in two years, increasing 37% year-on-year. Amazon's operating income and operating margin improved by 43% and 13.7%, respectively and reached $27.5 billion.

Amazon announced an additional investment of $35 billion in OpenAI. This investment is part of a multi-billion dollar investment to develop the entire AI ecosystem. The Fibonacci extension estimates that Amazon is expected to reach a stock price of $279.76 in the near future. The highest stock price in the last 52 weeks is $278.56.

Q2 Financial Performance Highlights.

With a 39.4% operating margin, AWS accounted for Amazon's revenue with a total of $42.2 billion and an annual run rate of $169 billion and a backlog of contracts totaling $496 billion, was a tremendous success. Additionally, both the AWS AI and custom chips businesses were reported to have an annual revenue run rate of over $25 billion and growth in excess of 100%.

The non-cash revaluation of Amazon's Anthropic stake of $53.4 Billion, which takes EPS to $5.75, shows how strongly core performance was. Operating income increased by 43% to $27.5 Billion. Revenue in North America was $116.2 Billion with operating income of $9.1 Billion. Advertising income increased to $19.8 Billion, representing an increase of 26%. The operating cash flow for the previous twelve months rose by 33% to $161.4 Billion. It was also reported that free cash flow was $7.6 Billion negative. This negative free cash flow was due to Amazon fully meeting its guidance for the year, which was $220 Billion in capital expenditures.

$35 Billion Investment in OpenAI

$35 Billion was put forward by Amazon for OpenAI with the investment coinciding with a 15% increase in the stock price due to the earnings report. The purpose was to gain the revenue for computing resources. It also was a financial investment and a strategic investment to give them the computing resources and the strategic advantage OpenAI will have if it becomes the dominate player in enterprise AI. Further, it shows that the $220 Billion infrastructure spending cap is actually a guideline. Due to this investment, Amazon is in a very strong position in comparison to OpenAI. Unlike Alphabet, Amazon has proven the strong demand with a clear back-log and limited supply.

The Week Ahead - Amazon Observes the Macro Landscape

Following the Q2 earnings release, the week of August 3 to 7, macro data takes precedence for investors. ISM Manufacturing PMI releases on Monday, August 4, followed by ADP employment and ISM Services PMI on Wednesday. The July non-farm payroll release will be the most relevant macro event for growth investors this week. This release will be on Friday, August 7, at 8:30 AM ET. June’s non-farm payroll estimate was 57,000, missing the 110,000 forecast by a significant margin. If July’s report is similarly disappointing, a September Fed rate cut will be on the table. A rate cut will ease Amazon’s future cash flow discount. Currently, the present negative free cash flow is offset by a valuation of roughly 40 times future operating earnings.

AMZN Technical Setup

As seen in the 4-hour chart, AMZN currently at $271.58 has broken the 50 EMA (244.62) and the 100 EMA (245.02) with strong volumes after earnings and is likely to hit $279.76 the 1.618 Fibonacci extension which is also close to the 52-week high of $278.56.

Amazon (AMZN) Stock Price Chart - Source: Tradingview

With a 15% increase in one day, the RSI is also in the overbought region at 80. In the case of a pullback, the first line of defense (nearest support) is at $268.03.

As long as AMZN remains above $268.03, a bullish trend will remain as AMZN targets $279.76. If $279.76 is breached, then AMZN will likely move towards $292.89 and $302.25. As long as AMZN remains above $258.66, the 50 and 100 EMA in the zone $244 - $245 will remain as structural support.

Key Levels

Close July 31: $271.58 (+15.32%). After-hours $270.34. 52-week range: $196.00 to $278.56

Q2 AWS: grew 37% year-on-year to $42.2B — fastest growth in 18 quarters. Annualised run-rate $169B. Backlog $496B.

Q2 revenue: grew 20% to $200.6B. Operating income $27.5B (+43%). Ad revenue $19.8B (+26%).

OpenAI: additional $35B after July 31 investment. Total AI ecosystem commitment continues growing

Capex: forecasted $220B in full-year 2026. FCF -$7.6B TTM. Jassy: demand expected to outstrip capacity through 2027+.

Post-earnings analyst targets: Morgan Stanley $330, RBC $330, Telsey $335, Roth Capital $325.

Resistance: $279.76 (1.618 Fib), $292.89, $302.25. 52-week high $278.56

Support: $268.03, $258.66, $245.21 (50/100 EMA cluster)

Why Amazon Gained 15% While Meta Dropped 10% on Similar Capex Hikes

Meta's stock dropped 9.64% after-hours with Amazon's increasing 15.32% after both companies reported capex increases driven by accelerating growth. The stock movement shows how demand justifies spend. Meta did not show clear supply constraint, however Amazon's CEO Andy Jassy confirmed that demand for AWS will outstrip capacity through the end of 2027 and beyond.

Amazon is also backed by a $496B AWS contracted backlog and thus proved that $220B capex is the minimum for contracted customers, showing the spend is backed by demand.

Amazon's $25B Custom Chip Business

Amazon's custom-designed AI hardware includes Trainium, for training, and Inferentia, for inference. Jassy noted that its custom chips business unit surpassed a $25 billion annualized revenue run rate and hit triple-digit annual revenue growth for the last three consecutive years. For the first time, Amazon is able to achieve strategic autonomy from Nvidia by providing a cost-efficient alternative for AWS users to compete with Nvidia to provide training and inference services, making AWS even more cost efficient. This unit, and the custom chips designed to integrate with AWS, is likely one of the fastest growing and most successful semiconductor businesses in the world, and is experiencing significant triple digit growth.

Bottom Line

On July 31, Amazon shares soared 15.32% after news of AWS growth at 37% and crossing the $200 billion annual revenue mark. Jassy said AI demand will outpace supply through 2027. Amazon also invested another $35 billion in Open AI on the same date. Fibonacci projections and the 52-week high show immediate resistance at $279.76 and $278.56, with a likely target of $271.58. With the RSI nearing 80, an immediate shallow pullback to $268 is more likely, before setting new highs. Key macroeconomic indicators of the week, starting with ISM Manufacturing Monday and leading with NFP Thursday, will influence whether the rate environment will justify a continued reassessment of Amazon's negative free cash flow at 40 times free operating earnings.

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