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Stock Market News: Amazon Heads for $2,000; Is Lyft's IPO a Bust?

Dan Caplinger, The Motley Fool

The stock market started the new month on a positive note, gaining ground as many investors seemed more comfortable with the possibility that the global economy will avoid a full-blown recessionary slowdown. As of 11:30 a.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 243 points to 26,172. The S&P 500 (SNPINDEX: ^GSPC) climbed 25 points to 2,859, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) rose 77 points to 7,806.

Many market participants who focus on technology stocks have wrestled with the decision of whether to go with well-established giants in the field or invest in upstart companies with plenty of potential for sharp growth. That battle shows no signs of ending, but today, the old-timers appear to have won the latest round. Amazon.com (NASDAQ: AMZN) earned favorable comments about its plans for growth, but newly public Lyft (NASDAQ: LYFT) saw its stock dip below the price at which it initially offered shares to investors.

Amazon looks upward

Shares of Amazon climbed about 1.5%, moving above the $1,800-per-share level as the e-commerce and cloud services company received favorable comments from Wall Street analysts. In particular, analysts at Oppenheimer boosted their price target on Amazon, moving it higher by $110 to $2,085 per share and reiterating their outperform rating on the stock.

Semitrailer with Amazon Prime logo on the side

Image source: Amazon.

Oppenheimer sees a lot of things happening on the Amazon Web Services side of the business. Although many people who own the stock focus largely on its colossal retail operation, Amazon has taken full advantage of the move among major enterprise customers into the cloud. Those trends show no signs of slowing, and in fact, key initiatives are likely to hasten the move toward cloud computing. As artificial intelligence contributes to gains in productivity, Oppenheimer believes, it'll be just one more incentive for businesses to adopt cloud-based systems -- further fueling Amazon's gains.

Many shareholders have had mixed feelings about the possibility that Amazon might split up its e-commerce and AWS units into separately traded companies. There's no question that Amazon Web Services would be worth a lot as an independent business, and even with fierce competition across the industry, Amazon has thus far maintained a stranglehold, sustaining its market share at around a third of the entire sector. If it can keep its customers happy, then Amazon could see even more growth that could push share prices back to $2,000 and beyond.

Losing its Lyft

Lyft shares went the other direction Monday morning, dropping 11%. With the move, the stock fell below the $72 per share at which participants in the ridesharing service's IPO last week bought into the stock. In Wall Street language, such a move makes Lyft what's known as a busted IPO, calling into question whether the initial pricing of the shares was overly optimistic.

To be fair, Lyft itself didn't expect such a high price for its shares when it was going through the preliminary IPO process. During its roadshow for institutional investors, the company seemed to see stock prices likely being in the range of $62 to $68 per share. But those numbers gave way to higher pricing once it became clear that the institutional participants in the IPO saw high demand for Lyft shares and were willing to pay up to get them.

Investors shouldn't consider the downward move to be a kiss of death for Lyft. Many other prominent tech companies have seen their share prices languish for months below their initial public offering prices, only to skyrocket once their businesses took off.

However, skeptics note that Lyft is losing a lot of money, and it hasn't yet revealed a firm strategy for addressing all the challenges it faces. It's entirely possible that external factors will boost Lyft's value over time, but until that path forward becomes clearer, shareholders might have to deal with volatility like what they're seeing today.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.