Both Amazon.com Inc. and Apple Inc. reported their earnings on Thursday, leading to a notable shift in perspective from Rosenblatt Securities analyst Barton Crockett. Crockett upgraded Amazon’s stock to buy from neutral after analyzing their earnings, while taking the opposite stance on Apple.
Crockett expressed confidence in Amazon, stating, “Our previous concerns regarding overly optimistic consensus views have diminished.” He believes that as Amazon focuses on improving efficiency in retail and harnessing the potential of AI in cloud computing, the potential risks from economic headwinds appear less concerning. This paves the way for greater growth opportunities and higher consumer demand.
Following this news, Amazon’s shares surged by 10.7% during Friday morning trading, marking the largest single-day percentage gain since November 10, 2022, when they rose by 12.2%, according to Dow Jones Market Data.
Crockett specifically highlighted the stabilization of Amazon Web Services (AWS), their cloud computing business, and emphasized the potential for Amazon to capitalize on the growing interest in generative artificial intelligence.
The Potential of Generative AI in the Cloud Sector
According to a report by Crockett, generative AI is still in its early stages, with Microsoft and Google leading the way through their innovations, Bard and ChatGPT. However, with Amazon’s vast scale and experience in selling machine learning services, as well as its investments in key capabilities like custom inferential and training chips, and large language models, it is poised to participate and benefit from the potential growth of generative AI.
Improved Margin Performance in North America Retail Business
Crockett is pleased with the North America retail business’s margin performance, which has been enhanced by placing a greater focus on regionalization. The company has achieved this by increasing delivery speed and optimizing inventory placement, resulting in reduced travel distance, fewer touches, and lower costs. As a result, Crockett has raised his price target for the company to $184 from $111.
Apple’s Need for Diversification Beyond the iPhone
While Apple has a dedicated following and a continuous stream of upgrades, Crockett expresses concern that the company needs more than just the iPhone to drive its future performance. There is uncertainty surrounding when or if a “material new product category” will emerge to contribute significantly to the company’s growth. Without this, Apple may struggle to experience a substantial boost in its core iPhone business.
Stock Performance and Outlook for Apple
In Friday morning trading, Apple’s stock saw a decline of 3.1%, marking its most significant one-day drop in seven months. The market reaction reflects investors’ uncertainties regarding Apple’s future growth prospects.
Conclusion
As the development of generative AI progresses, Amazon’s investment in machine learning services positions it favorably to capitalize on the potential growth in the cloud sector. Apple, on the other hand, faces challenges in diversifying beyond the iPhone and finding a new product category to drive its performance. The market’s reaction to these concerns is evident in the recent decline in Apple’s stock price.
Opinion: Apple is Struggling towards a Lackluster Milestone
Despite the emerging-markets outperformance theme, Apple shares may face challenges in improving significantly if the core Americas region remains lackluster. This is according to Crockett, who has maintained his $198 price target on the stock.
It seems that Apple is on the path towards a mediocre milestone that it has not encountered in 22 years.
