Amazon stock forms an alarming pattern: is a crash coming?
Amazon stock price has pulled back in the past few months, moving from a high of $258 in November to the current $230. It has also formed a risky chart pattern, pointing to more downside ahead of its earnings.
Amazon stock price technical analysis suggests more downside
The daily timeframe chart shows that the AMZN share price has pulled back in the past few months, moving from a high of $258.71 in November to the current $230.
It has crashed below the 50-day Exponential Moving Average, confirming that bears are in control for now. Also, the Supertrend indicator has turned red, which often leads to more downside
Most importantly, the stock has formed the highly bearish chart pattern known as a head-and-shoulders. Its head is at its 2025 high of $258, while the shoulders are between $238 and $250.
Therefore, the most likely scenario is where the stock continues falling in the coming weeks as sellers target the next key support level at $210, which coincides with the 50% Fibonacci Retracement level. On the flip side, a move above the key resistance level at $250 will invalidate the bearish outlook.
AMZN stock chart | Source: TradingView
Amazon earnings to be the key catalyst
The next major catalyst for the Amazon stock price will be its earnings, which will come out on February 5. These results will provide more information about its performance in the last quarter and its growth in the cloud computing industry.
The most recent results showed that Amazon growth continued in the third quarter. Its revenue rose by 13% in the third quarter to over $180 billion, with North America bringing in $106 billion and AWS making over $33 billion. Its international business made over $40 billion
Amazon’s operating income was flat at $17.4 billion, while its net income jumped to $21 billion. Its net profit benefited from the gains from its investments, a figure that may continue rising this year because of Anthropic’s gains.
AWS continued growing, with its operating profit of $11.4 billion being much higher than that of international and North America combined.
Data compiled by Yahoo Finance shows that analysts expect Amazon’s revenue rose by 12% in the fourth quarter to over $211 billion, while its earnings per share jumped by 5% to $1.95
Analysts also expect that Amazon’s annual revenue will jump by 11% this year to $794 billion. Its earnings-per-share is expected to come in at $7.88, up from $7.07 last year.
There has always been a challenge for identifying the real value of Amazon because of how its business is structured. Unlike other companies, Amazon is made up of two businesses in different areas. It has the slow-growth and low-margin business, which brings in the most revenue and the least profits.
On the other hand, it has the AWS business, which powers the world today. It is the workhorse behind most companies, including Netflix, Twitch, Spotify, Canva, Pfizer, and Adidas. This business generates quality recurring revenue with high margins, meaning that it needs a higher valuation multiple.
Amazon has a forward PE ratio of 32, higher than Microsoft, which has a multiple of 28. Ideally, Microsoft should have a higher multiple than Amazon because of its business model, its faster growth, and higher margins. Microsoft has a profit margin of 35, higher than Amazon’s 11%.
READ MORE: AWS outage exposes global dependence on Amazon’s cloud network
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