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Amazon.com Catches Fire

Vishesh Kumar

It's Amazon.com's (AMZN Quote) world, as far as Wall Street is concerned.

Shares of Amazon.com were up more than 5% to $74.05 on Tuesday after the company announced plans to increase investments in China.

Amazon was also boosted by a bullish report by Bank of America, which raised its price target on the stock to $79 from $62.

On Tuesday, Amazon CEO Jeff Bezos reportedly said that the Web retailer will boost its investment in the fast-growing Chinese market. Amazon owns Joyo.com, a Chinese online retailer that Bezos said represents Amazon's fastest-growing business in the world.

Amazon will rename Joyo.com "Joyo Amazon" and will offer customers promotions such as free shipping.

The bullish sentiment seems to keep building around Amazon since the company announced first-quarter results that breezed by Wall Street expectations. Amazon also said that it would rein in spending on new technology, a move that would see its oft-scrutinized operating margins expand faster than analysts had predicted.

Shares of Amazon have now gained almost 80% since the start of April, and a growing legion of Wall Street analysts have rushed to get behind the stock. The company also recently announced a digital music initiative, further emboldening bulls.

The gains have helped Amazon to break away from the pack in the big-cap Internet space, though Google (GOOG Quote) has been on a roll of late too, hitting an all-time high Tuesday. Yahoo! (YHOO Quote) and IAC (IACI Quote), by contrast, remain mired.

Bank of America analyst Brian Pitz was the latest to join the chorus on Wednesday. Pitz boosted his price target almost 30% to $79 from $62, citing a pullback in technology spending, a push toward higher-margin digital media, new ad-related revenue and the adoption of Amazon Web services -- a move that will provide services such as storage and computing power to other businesses. Bank of America makes a market in Amazon shares.

But while Wall Street seems determined to cheer Amazon, there is little new in the horizon that could have a serious impact on Amazon's bottom line.

A cut in technology spending has been expected since the company's last earnings announcement. The digital media business is just getting off the ground. And an uptick in ad revenue will only amount to between $50 million and $60 million by Pitz's estimate -- hardly enough to move the needle for Amazon, which clocked $11.5 billion in revenue last year.

The anticipation around Amazon Web Services, meanwhile, may be getting dangerously ahead of what the company itself has promised. While Wall Street seems fascinated with the direction, Bezos has often warned that it will be awhile until the services meaningfully contribute to the company's bottom line. In the meantime, the company will continue to invest in the build-out.

"We see incremental opportunities related to Amazon Web Services, although we note that the impact is likely to be felt longer term, given the early stage nature of AWS and the overall size of Amazon's business." Pitz wrote.

Pitz also noted that short interest in Amazon has climbed to 18% of the float as opposed to 16% in May. "We anticipate that better than expected second quarter results from Amazon would likely push the stock higher."

But that's a double-edged sword. Trading at 58 times forward earnings, the stock could also see a stampede if any cracks start to show. And the term "better than expected" seems to grow more onerous by the day.