Amazon stock recently shocked the market with a massive 8.1% surge in a single day. This comes on the heels of a 90-day trade truce between the United States and China. The bottom line is that Amazon was the standout of the group as many tech firms saw growth.

This is not a random performance of the market. It was the largest single session move among all the major tech stocks, often called the Magnificent Seven. 

To understand the excitement of investors, it is important to know the extent to which Amazon is tied up with China’s trade.

The China Connection: Why This Truce Matters for Amazon

Unlike its competitors, Amazon is more sensitive to trade relations given its unique business model. Amazon’s website accounts for approximately 30% of China’s sales. When trade tensions are high, these goods become more expensive or harder to stock.

Prior to the truce, tariffs were as high as 145% on China’s exports. Nobody ever put too much stock in these additional expenses, but they dragged down Amazon’s retail business. Those tariffs have been lowered under the new agreement to 30%. The move is a big relief for Amazon, which will drop its prices to consumers and improve its profit margins.

It’s not all about products on a shelf. Chinese advertisers also play a huge part in the ecosystem. They currently make up about 14% of the total money spent on Amazon ads. These sellers retreat when people are unsure of the trade war.

The $70 Billion Advertising Machine

Amazon’s advertising business has become a quiet powerhouse. It increased by 24% in the past year to a run rate of $70 billion. This area of the business is very lucrative. Any boost in spending from Chinese advertisers is a big deal for Amazon’s bottom line.

The stabilization is expected to give Amazon a nice boost to its Q2 financial guidance, analysts said. When sellers become secure about the future of trade, they buy more ads for selling products. This creates a cycle of growth that has the advantage of both the marketplace and the stock price of Amazon.

AWS and the Power of Infrastructure

While the trade truce helps the retail side, Amazon Web Services (AWS) is also performing exceptionally well. In fact, Amazon Web Services’ growth sped up to 28% during Q1’s earnings call, an increase of 480 basis points, said CEO Andy Jassy.

Two things are helping to power this growth:

• Core cloud services
• A rise in spending on artificial intelligence (AI)

The relationship between cloud power and business investment in AI means there’s a strong correlation between the two. The trade truce does not alter the actual functioning of cloud computing, although it eliminates a layer of market fear.

Investing in the Future: The 2026 Vision

Amazon is also playing a long-term game with its capital expenditures. The company has a $200 billion plan for infrastructure spending. A number of investors expressed unease about such an expense, but Andy Jassy explained.

Much of this expenditure is on data centers and servers. These assets have useful lives of 6 to 30 years. Most importantly though, Amazon has customer commitments on much of the new capacity. This means Amazon is not just building and hoping for customers. It is working on infrastructure.

Technical Analysis: The Path to $286

From a technical perspective, Amazon’s stock is looking very strong. Prior to the surge on the day, the stock was trading at $273.55 and had broken above a critical $264 level a session ago. This is called a fibonacci breakout and is an indication of a new uptrend.

The stock cleared another significant hurdle at $277.69 on the back of the trade truce. Even though the RSI readings are in double digits, the ongoing trend appears to be a momentum breakout. This indicates that the stock has ample strength to continue its upward momentum and not fatigue.

Here are the key levels for investors to watch:

• Target Levels: The next major target is $285.97, then a range of $286 all the way to $294.
• Support Levels: On the low side, one should expect to see support at $264 and $268 prices.
• Safety Zone: To safeguard against sudden drops, one can consider a stop-loss order below $255.

Joining the $3 Trillion Club

The future looks bright for Amazon. Many experts, including those at The Motley Fool, predict that Amazon will join the $3 trillion valuation club by 2026. The stock would need to get to a price of $285 to $290 in order to achieve the same.

Wall Street analysts are even more bullish. The average consensus price target for the stock is $308. This is a potential increase of 10-18% compared to pre-trade truce levels. These goals seem to be more realistic than ever with the Q2 results pending in late July.

The Bottom Line

Amazon is in a “sweet spot” right now as multiple good things are happening at the same time. For the retail and advertising sector, it has lifted a serious obstacle to the trade truce. Meanwhile, the AI revolution is driving major growth for AWS.

It means it’s a loud clarion call to investors. Amazon has managed to make a bad trade around the world into a huge achievement. The company’s impressive stake comes from having been a major player in the retail sector, paired with a burgeoning tech company.

 

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