Why Amazon’s share price is exploding higher

This month, Amazon’s share price has risen from $3,440 to $3,697. Here, Edward Sheldon looks at what’s driving the technology stock higher.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Last month, I only bought one stock for my portfolio. That was Amazon (NASDAQ: AMZN). It’s fair to say I’m happy with my purchase. I paid $3,490 for my AMZN stock. Today, Amazon’s share price is $3,697.

Here, I’m going to look at what’s driving the Amazon share price higher right now. I’ll also discuss whether I still see the stock as a ‘buy’ today.

Why Amazon’s share price is rising

There are a number of reasons Amazon’s share price is moving higher right now. One is that there’s been a huge market shift back into ‘Big Tech’ recently. Amazon certainly isn’t the only large-cap technology stock to move higher in the last week or so. This month, Apple has climbed from $137 to $145, Microsoft has risen from $270 to $280, and Alphabet has jumped from $2,506 to $2,602.

The move into Big Tech seems to be related to fears that the economy may have reached its peak. What we’re seeing is a shift out of cyclical ‘reopening’ plays and a shift back into more secular growth stocks. It also seems to be related to the fact that long-term bond yields have fallen. This week, the 10-year US Treasury yield has fallen below 1.3%. This has increased the appeal of the technology sector.

It’s worth noting that Big Tech currently offers ‘growth at a reasonable price’ as well as an element of defensiveness. This combination is very attractive to a lot of investors, me included.

The Jedi contract

Looking more specifically at Amazon, its share price shot up this week after the US Department of Defense cancelled its ‘Jedi’ contract. This was a $10bn cloud computing contract awarded to Microsoft a few years ago. Amazon wasn’t happy it missed out on this deal. The Pentagon has said it will rebid the cloud contract, meaning that Amazon now has another shot at winning it.

Amazon had a huge black eye when they lost this deal and now back involved it’s a victory for AWS at a time that many federal agencies are ramping towards cloud,” said analysts at Wedbush.

Bullish share price pattern

Finally, it’s worth pointing out that Amazon shares had been in a consolidation pattern, building a base, for around a year. In other words, the stock had gone nowhere for 12 months.

Given the company’s strong growth, a big move up was always a possibility and that’s what we’ve seen. As they say in investment circles: “the bigger the base, the higher into space.

Would I buy Amazon shares today?

Would I still buy Amazon stock at the current share price? Absolutely. In the long run, I think the stock is going much higher. My view is that the growth story here (e-commerce and cloud computing) is still in its early days.

It’s worth noting that in recent months, many analysts have lifted their share price targets for Amazon stock. Most have raised their target above $4,000. Currently, the average price target on Wall Street is $4,238.

I should point out, however, that Amazon has historically been a volatile stock. It regularly has pullbacks of 20-30%. So, it’s not a stock for those seeking portfolio stability. I’m certainly not expecting it to go up in a straight line.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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