Amazon is bracing for its slowest growth in 20 years, despite a post-earnings 11% share price jump last week, according to a bank strategist.
Earnings helped the stock rally in the face of a sustained tech selloff, in what Peter Garnry, head of equity strategy at Saxo Bank, called a misguided interpretation of earnings.
Garnry pointed to the company’s Q1 guidance on revenue and operating income falling below analyst expectations, with multiple headwinds on the horizon as conditions turn bearish.
“While we are in favour of the wisdom of the crowd, we believe the price reaction to Amazon’s earnings is potentially wrong and investors are overestimating growth.”
Garnry identified three sources for this potential misguided interpretation, the first being the growth of cloud computing service AWS, which he says may need to be broken up in the face of antitrust regulations.
The second reason, Garnry suggested, was based on Amazon’s prolific capital investment streak, which sits 96% above pre-pandemic trend growth and tempted investors based on the company’s previous success in turning expenditure into revenues.
But Garnry pointed out a lot of that spend was likely to be tied up in COVID-related maintenance investments, while the 262% growth in capital spending through COVID was likely eventually to drag on profits.
Finally, Garnry noted that Amazon was yet to be stress-tested during periods of high inflation, disrupted supply chains, and global logistical bottlenecks.