eyeQ: this could be an opportunity to add Amazon shares to basket
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. This is what it tells us about this Magnificent Seven stock.
28th August 2024 10:49
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Amazon
Trading signal: long-term strategic model
Macro Relevance: 69%
Model Value: $188.93
Fair Value Gap: -9.13% discount to model value
Nvidia day! They report earnings after the US close this evening. Generative AI has been the theme dominating technology stocks and equity markets more broadly so what NVIDIA Corp (NASDAQ:NVDA) report will be absolutely critical.
Away from Nvidia though, it is worth checking in on the other tech giants. In general, Amazon.com Inc (NASDAQ:AMZN) is perceived to be lagging in the AI arms race; OpenAI, Microsoft Corp (NASDAQ:MSFT) and Google are seen as the current leaders.
But Amazon is trying to play catch-up. Their Bedrock tool gives AWS customers access to third-party AI models such as Anthropic and Meta. These stories about specific company products and strategies will help investors on which stock is best placed to be the best AI play.
But be aware that Amazon is back in a macro regime for the first time in 2024. eyeQ’s model now has a macro relevance score of 69%. Investors need to consider the big picture stuff such as growth and inflation too.
The model shows Amazon wants reflation (rising growth/inflation, i.e. a strong economy with consumers spending cash), but also healthy risk appetite. And the rebound in risk appetite since the early August “flash crash” has lifted Amazon’s fair value by around 20% over the last three weeks.
But the stock is lagging that improvement in its macro environment. Why?
Disappointing earnings weighed at the start of the month. While the stock has recovered a little, it has yet to close the gap on the charts from that lurch lower; gaps like this are important from a technical analysis perspective, so you’d want to see the stock recover back over $180 to be confident that the charts can turn bullish again.
There are good reasons for caution therefore. But Amazon is 9.13% cheap to macro conditions which are supportive. Waiting for Nvidia results and ideally the charts to regain $180 would be prudent, but this could be an interesting entry level.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
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