An earlier version of this story incorrectly named Stifel's lead analyst covering Alphabet. He is Scott Devitt.
Following Alphabet Inc.'s GOOGL, -5.28% fourth-quarter earnings release, analysts at Stifel have cut their rating on shares to hold from buy. The analysts, led by Scott Devitt, raise a number of "longer-term concerns," including the impact of Amazon.com Inc.'s AMZN, +2.87% ever-expanding retail dominance on Google's search segment. Devitt cites a third-party study saying that more than half of all consumer-product searches begin at Amazon: "This has the potential to cannibalize Google's revenue from retail advertisers." He added that Google's traffic-acquisition costs have been rising as a percentage of total gross revenue. "Rising TAC presents a greater risk to multiple compression rather than margin erosion in the near term, though greater-than-expected TAC could continue to create a headwind to margin expansion," Devitt wrote. He kept his price target of $1,150 unchanged. Alphabet shares are down 4.1% in premarket trading but up 44% over the past 12 months. The S&P 500 Index SPX, -2.12% is up 24% in that time.
"While profitability is taking a step back, we believe Amazon is once again investing ahead of growth in commerce and voice search," Mizuho said in a note announcing its price target upgrade.
Credit Suisse's target price of $1,750 is the highest of the latest round of upgrades. If realized, it would represent a near 26 percent increase from Thursday's closing price of $1,390.
But Credit Suisse is not the most bullish analyst on the Street. Last month, D.A. Davidson increased its price target for Amazon shares to $1,800 from $1,500.
"We see two potential catalysts for shares over the next 12-month period: stronger-than-expected operating results from the company's cloud computing efforts, which we believe remains the primary driver of its share price and, due to its increasing mix of highly-profitable third-party sales (which surpassed 50 percent for the first time in 2Q17)," analyst Tom Forte wrote in a note to clients last month.
Amazon's cloud business continued to be its fastest-growing and most profitable in the fourth quarter. For the quarter, AWS sales jumped 45 percent year-on-year, while generating $1.3 billion in operating income, a whopping 64 percent share of Amazon's total operating income.
CEO Jeff Bezos also said Amazon would "double down" on its Alexa voice technology.
Analysts are extremely bullish on Amazon's stock in the long term, thanks to a number of factors.
"In a nutshell, Amazon remains one of our favorite secular tech growth stories for FY18... and these robust results and 2018 outlook support the Amazon consumer growth thesis, coupled by cloud strength on the AWS segment which is still in the early innings of playing out among enterprises globally on the secular cloud theme," Daniel Ives, head of technology research at GBH Insights, wrote in a note Thursday.
- CNBC's Tae Kim and Eugene Kim contributed to this report.
(Reuters) - Amazon.com Inc’s shares surged on Friday, pushing its stock market value above $700 billion and threatening to eclipse Microsoft Corp, a day after the online retailing behemoth reported blockbuster results.
Amazon’s stock was up 3.7 percent at $1,441 per share in afternoon trade, on track for a record high close and putting its market capitalization at $701 billion. The stock traded as high as $1,498.
Microsoft fell 2.2 percent to $92.97, trimming its market capitalization to about $711 billion.
Apple Inc, the world’s most valuable listed company, was worth $827 billion on Friday after reporting disappointing iPhone sales on Thursday. Its stock fell 3.7 percent to $161.57.
The major stock indexes fell as much as 2.1 percent in a broad retreat.
At least 13 brokerages raised their price targets for Amazon after it posted record profits, pointing to growth potential from increasing global Prime subscriptions and a market-leading cloud business.
Analysts at Jefferies, Wedbush and Credit Suisse were the most bullish, boosting their targets to $1,750. At that price, Amazon would be worth about $850 billion.
Microsoft’s stock has jumped 150 percent to new highs since Chief Executive Officer Satya Nadella took over in 2014 and made the company a major player in cloud computing while reducing its dependence on a tepid personal computer industry.
But Microsoft has failed to keep up with Amazon shares, which have surged 73 percent in the past 12 months.
Amazon revenue has been growing at a scorching pace as more shopping moves online and businesses shift their computing operations to the cloud, where Amazon Web Services (AWS) leads the market.
AWS, which competes with Microsoft’s Azure and Alphabet Inc’s Google Cloud platform, reported a 45 percent jump in revenue to $5.1 billion in the quarter.
“AWS is still adding more incremental dollars than all public cloud competitors combined,” Barclays analyst Ross Sandler said.
The high-margin business, which accounts for a significant chunk of Amazon’s operating profit, has been providing cash for investments and supporting the razor-thin margins in retail.
Amazon’s earlier investments in warehouses have yielded results for the company as lower shipping costs boosted its quarterly operating margin to 3.5 percent, its highest fourth-quarter margin since 2010, analysts said.
Wall Street analysts are overwhelmingly bullish on Amazon, with 46 of 50 brokerages rating it “buy” or higher, three “hold” and only one “sell.” Their median price target is $1,580.
Futures for the S&P 500 index futures turned sharply lower Friday morning as a global bond sell-off continued with the U.S. January jobs report on tap. Nasdaq 100 futures reversed sharply, with Amazon (AMZN) still booming on Q4 results but Apple (AAPL) giving up most of its post-earnings gains.
X The 10-year Treasury yield traded at 2.79%, continuing its strong 2018 rise. The 30-year yield topped 3% for the first time in years Thursday. The Bank of Japan said it would buy 5- and 10-year government debt after the 10-year Japanese yield threatened to top 0.1%. German bund yields are multiyear highs.
S&P 500 index futures fell 0.6% vs. fair value. Dow futures sank 0.8%, or more than 200 points. Nasdaq 100 futures, up solidly Thursday night, lost 0.7%.
Separately, Bitcoin and other cryptocurrencies continued to plunge as regulators and Facebook (FB) crack down and euphoria fades following a climax-type run that peaked in December. Bitcoin dipped below $8,000 Friday morning, currently down 12% to $7,968.23, according to CoinDesk. Bitcoin crashed below $9,000 on Thursday.
The January employment report is due at 8:30 a.m. ET. Economists expect to see nonfarm payrolls up 175,000 and the jobless rate holding at 4.1%. But the focus may be on average hourly wages, which are seen up 0.3% vs. December and 2.6% vs. a year earlier.
Apple
Apple reported better-than-expected earnings and revenue for the holiday fiscal first quarter, though iPhone shipments missed forecasts. Apple guided current-quarter revenue forecasts sharply lower. Shares rose more than 3% late Thursday, but with futures tumbling Apple was up just 0.6%.
Extended trading often doesn't translate into the following session. There is a strong case that Apple's bad news was already priced in the stock price. Several analysts warned of weaker iPhone production and demand leading up to the earnings report. That sent the stock below a recent buy point and its 50-day moving average, even as the broader market was soaring in January.
But on the other hand, Apple's news wasn't great. And the AAPL stock chart is still in bad shape. The relative strength line, which tracks a stock's performance vs. the S&P 500 index, has been lagging for months, and recently hit its worst levels since mid-June. Technically, a 176.34 buy point is still valid, though you'd want to see the RS line top at least short-term highs to provide some confirmation.
IPhone Stocks Rally
Apple, which is the biggest member of the S&P 500 index, Nasdaq composite and Dow industrials, also gave a boost to iPhone-related stocks such as Broadcom (AVGO), Applied Materials (AMAT) and Universal Display (AVGO).
Broadcom rose 0.5% early Friday. But the chipmaker, which set a four-month closing low Thursday, is stuck below its 50-day and 200-moving averages.
Applied Materials is a chip- and display-equipment maker. It is not an Apple supplier, but some analysts have pegged it as an iPhone X play due to its involvement in OLED displays. Applied Materials rose 1% late Thursday but reversed to down about 1% early Friday. Applied Materials is in a cup-with-handle base, but the stock is finding resistance at its 50-day moving average.
Universal Display also is not an Apple supplier, but as its OLED ticker suggests, makes technology used in producing the high-end screens for premium smartphones. Universal Display rose 3.9% early Friday. The stock had closed at its lowest level in almost three months after a January breakout broke down.
Qorvo (QRVO) is an iPhone chipmaker, but shares weren't that active overnight. They might be tired after skyrocketing 16% to close at 83.34, clearing an 81.30 cup buy point. Qorvo guided lower late Wednesday, but touted a big Apple contract win that will increase its iPhone business, at the expense of Broadcom.
Amazon
Amazon reported blowout earnings, helped by a big tax-cut benefit, while revenue also topped. Shares rose 5.7% early Friday after falling 4.2% Thursday. Amazon has been a huge winner so far in 2018 after clearing a late-stage base.
Meanwhile, Amazon's upside was offset by Google parent Alphabet (GOOGL) and Amgen (AMGN), which both missed on earnings. Alphabet lost 3.2% early Friday and Amgen 2.2%.
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