September got off to a rough start, with major indexes taking a sharp dive as investors adopted a more risk-averse stance. The Nasdaq suffered the most, dropping 3.26%, largely driven by Nvidia's (NVDA) steep decline of 9.53% to $108 per share, with an additional 1.44% drop in after-hours trading on September 3rd. The Russell 2000, which tracks small-cap stocks, also took a significant hit, falling 3.09%, while the S&P 500 decreased by 2.12%.
The decline was primarily driven by the release of the final August Purchasing Managers' Manufacturing Index (PMI) from S&P Global, which came in at 47.9, slightly below the expected 48.0. This figure was not only below estimates but also a significant drop from July's 49.6, marking the first decline in seven months as demand begins to wane. Additionally, the August Institute for Supply Management Manufacturing Index fell short of expectations, rising to 47.2 versus the anticipated 47.5, though it did show improvement from July's 46.8. These minor misses in economic data triggered substantial market drops, highlighting the fragile and highly sensitive state of the current markets.
In this uncertain market environment, finding stocks to buy can be challenging. However, a good strategy is to watch what analysts at major banks are recommending. For example, JMP Securities recently raised their price target for Amazon (AMZN) stock, offering a potential investment opportunity. Ryan Deffenbaugh, Investors Business Daily author, reported, “JMP analysts led by Nicholas Jones reiterated a market outperform rating for Amazon and boosted their price target to 265, from 245. The target represents 48% upside from Amazon's closing price on Aug. 30 and is the highest projection among analysts, according to FactSet.”
The difference between JMP’s price target and those of other leading banks is largely due to JMP’s optimism about Amazon's future growth in its advertising business. Amazon's digital advertising business currently ranks third, behind Google parent company Alphabet (GOOGL), and Meta Platforms (META), according to most estimates. Despite this impressive standing, Amazon reported slower-than-expected ad sales in the second quarter, missing overall revenue estimates, which contributed to the recent sell-off in its stock.
However, this slowdown in ad growth did not affect JMP’s optimistic outlook. They project Amazon's year-over-year ad growth rate to remain in the "high teens to low twenties" range through 2028, only slightly below the 24% growth seen in 2023. In contrast, consensus estimates project a more modest growth rate in the low teens during this period. In a client note published on Monday, Nicholas Jones supported JMP's higher estimate, stating, “We believe our higher-than-consensus estimates for Amazon's Advertising Services business are reasonable given its robust advertising tech stack, recent introduction of ad-supported Prime Video, ongoing investments in content, including live sports, and its industry leading e-commerce and fulfillment platform.”
Additionally, Ryan Deffenbaugh, wrote, “‘Given AMZN's vertically integrated advertising and e-commerce platform, we believe consensus is underestimating its share gain potential, which, in turn, should drive more leverage in AMZN's e-commerce cost structure,’ Jones wrote. Amazon's ‘unmatched’ Prime membership data gives it an advantage in the ad market, the note added. The company is also early in the process of ramping up ad sales for its Prime Video service. ‘As Amazon dominates the retail media space, continues to attract search budgets, and, we believe, eventually points its technology to the open web, the company likely remains in its early days of attracting advertising budgets,’ Jones wrote.”
Jones' assertion that Amazon is “likely” in the early stages of attracting advertising budgets is particularly striking, given that the company reported $46.91 billion in ad revenue in 2023 alone—more than double the $19.77 billion it generated in 2020. If Amazon's ad revenue continues to grow at this pace, JMP's price target of $265 might not seem as far-fetched, especially compared to the current trading range of around $176. This price is an improvement from the low of $151 seen on August 5th, but still well below the all-time high of $201 reached on July 8th. Investors should take a close look at JMP’s claims about Amazon and keep an eye on recommendations from other major banks to spot stocks with the potential for significant returns.
Comentários