Stock Market

Why Amazon Layoffs Are NOT a Reason to Buy AMZN Stock

Big tech is taking an ax to its headcount, and Amazon (NASDAQ:AMZN) is no exception. The e-commerce and cloud computing giant recently announced its own round of mass layoffs, downsizing 10,000 corporate and technology positions. So far, this move has had little impact on AMZN stock.

AMZN dropped 2.36% on the news, but shares have since bounced back. The stock has held onto gains from last week’s turbocharged rally, fueled by rising hopes of a Federal Reserve pivot on interest rates.

However, don’t assume that means this FAANG component will avoid a pullback, and hop immediately on the path to higher prices. In fact, the stock could cough back last week’s gains, and then some, as the factors behind its big layoffs continue to affect Amazon’s performance, both as a company and as a stock.

With this in mind, it remains too early to bottom-fish.

AMZN Stock: Why Layoffs Won’t Prevent Another Plunge

Lately, Wall Street has largely had a strong positive reaction to big tech layoff news. Meta Platforms (NASDAQ:META), Lyft (NASDAQ:LYFT) and other major tech stocks have rallied following the announcement of their respective downsizing plans. Over the coming months, however, these rallies could prove not to be the prelude for a rebound.

The same applies here with AMZN stock, even as it failed to have a post-layoff rally. These layoffs are necessary for the industry to ride out the current macroeconomic storms. Unfortunately, they aren’t enough to outweigh the further impact of inflation and interest rates, or the impact of a potential 2023 recession.

Last week’s hope and hype about a Fed pivot is starting to fade. So far, remarks from Fed officials such as Christopher Waller indicate the central bank isn’t ready to change course on interest rates. A continued raising of interest rates, even if at a more moderate pace than recent hikes, could fully erase last week’s turbocharged gains.

That’s not all. After falling back to pre-ally prices, tech stocks overall, AMZN included, could continue to make a trip down to new lows, through the rest of 2022, and into 2023.

At What Price Will Amazon Bottom Out?

So, if layoffs fail to stem the tide, how much more could AMZN stock tumble before the dust settles? Some market commentators have argued shares could fall by as much as 50% within the next twelve months. My view? These sorts of bearish predictions may be a case of overdoing it.

A 2023 recession would negatively affect the performance of both its e-commerce and cloud computing segments. However, other factors, such as reduced growth expenditures, as Amazon continues to mature, will result in substantially higher earnings in 2023 and 2024.

Even the low end of analyst earnings estimates call for this to happen.

Still, while a 50% drop may not happen, a smaller double-digit decline may not be out of the question. A moderate amount of multiple compression, combined with a continued walking-back of 2023 estimates, may be enough to send AMZN stock another 20%, 25%, or even 30% lower.

In short, Amazon remains far from bottoming out, but not extremely far. Buying in today in the hope of a speedy rebound could prove to be a frustrating experience. Not just due to the risk of additional downside. A rebound back to AMZN’s high water mark could take years.

The Verdict on AMZN Stock

Depending on the severity of a 2023 recession, it may take longer than expected for Amazon’s earnings to reach 2021 levels of $3.30 per share.

Furthermore, earnings may need to rise substantially above this amount, in order for this stock (at around $100 per share today) to re-hit its all-time intraday high of $188.65 per share, and then make its way to new highs.

If you already own Amazon, I wouldn’t recommend exiting a position, but at the same time wouldn’t add to one. There’s a strong chance a more opportune time to accumulate additional shares could emerge.

As for investors who don’t yet own the stock? With the latest layoff news doing little to change the story, continue to wait on the sidelines with AMZN stock.

AMZN stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier held AMZN and META. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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