The technology sector is off to a bumpy start to 2018, including e-commerce giant Amazon.com, Inc. (AMZN). Quarter after quarter, Amazon continues to put up impressive growth numbers. Despite concerns over the stock’s valuation, Amazon’s aggressive expansion, unique market positioning and ability to disrupt new industries have consistently propelled its stock to new highs. However, Amazon is far from a risk-free investment. Bank of America analyst Justin Post[WD] recently took an in-depth look at the key themes technology investors should be watching closely. Here are eight catalysts Post says are moving Amazon stock.
- Tech Euphoria
Post says economic indicators suggest the technology sector is in the late stages of a cyclical bull market. Tech stocks, particularly Amazon and its FANG brothers Facebook, Inc. (FB), Netflix, Inc. (NFLX) and Alphabet, Inc. (GOOG, GOOGL) have been some of the top-performers of the nine-year bull market. Post says that the late stages of bull markets are driven more by momentum than valuation, suggesting FANG stocks like Amazon could continue to produce some of the best returns in the sector. Bank of America is calling for 2.7 percent U.S. GDP growth in 2018 and 29 percent year-over-year revenue growth from Amazon.
- Tax Cuts
It’s not just about the money Amazon will save from corporate tax cuts. It’s about what it will do with that money. Amazon has a long track record of making smart investments, and Bank of America says Amazon will likely get a bigger boost from tax reform than the other three FANG stocks. Amazon is one of just a handful of largest tech stocks Bank of America covers that should get at least a 20 percent earnings per share bump from tax reform in 2018, Post says. However, Amazon does not have a significant amount of overseas cash to repatriate.
- Rise Of The Millenials
Every year continues the slow shift in consumer demographics, and Millennials now have more spending power than ever before. Not surprisingly, Post says Millennials have a much higher and faster adoption rate for new technology than consumers of older generations, a trend which is good news for innovative tech companies like Amazon. According to BCG, Millennials aged 20 to 35 currently earn a combined $3.6 trillion annually and spend roughly $1.3 trillion globally, accounting for about 11 percent of the global economy. By 2020, Millennials and Generation Z will represent half of global wage earners.
- Unstoppable E-Commerce
Despite major new competition from Walmart Inc (WMT) and others, Amazon remains the gold standard of e-commerce. But just because Amazon has build a large competitive moat for its e-commerce business doesn’t mean it’s resting on its laurels. Amazon is investing heavily in the next generation of e-commerce, building its international business, integrating big data into its platform, expanding its fulfillment and logistics infrastructure and acquiring physical property as part of its omni-channel strategy. Post estimates global gross merchandise value in e-commerce sales will more than double from $2.1 trillion to $5 trillion in the next decade.
- Streaming Video
Not only has Netflix now become the clear leader in the streaming video space, Amazon faces…
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