Amazon.com and Alphabet are likely to hold up well in the current turbulent economy, but a strengthening dollar and a potential recession will pose challenges to both companies, Truist said on Wednesday.
Analyst Youssef Squali lowered his price target for Amazon stock (ticker: AMZN) to $170 from $180 and cut his call on Alphabet $(GOOG)$ to $136 from $145. The strength of the U.S. currency means sales made overseas will be lower in dollar terms than they would have been, while a mild recession now looks more likely as the macro environment in Europe worsens, Squali said.
Still, he maintained his Buy ratings on both companies. On Amazon, he said his checks indicate that consumer demand has held up in the third quarter, and that the additional Prime Day the company has planned for October should help it further. Search spending, critical for Alphabet's Google, has remained in line with last quarter's level, he said.
"We believe GOOGL and AMZN are best positioned to withstand current turbulence and emerge stronger from it," the analyst said. But "lowering estimates to reflect FX, prospects of a mild recession."
The dollar has soared as the Federal Reserve has raised interest rates faster than other central banks around the world, lifting the U.S. Dollar Index (DXY) to its highest value for the year on Tuesday. The index, which measures the strength of the greenback against a basket of currencies, was at $113.3 on Wednesday.
Squali said the drag on Amazon's revenue growth from unfavorable moves in currency rates will be 5.7 percentage points through September of next year, compared with the 3.9 percentage points management had estimated in July.
Alphabet gets roughly half of its ad revenue from outside the U.S. with about one-third coming from Europe, the Middle East and Africa (EMEA), Squali notes.
Stock in Alphabet was 2.62% higher at $100.05, while Amazon was up by 3.15% at $118.01 on Wednesday. The S&P 500 was marginally higher.