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Amazon's stock hits all-time high after winning Wall Street's expectations game

It's a weird week when Amazon's stock surges on a tiny profit, while Apple's stock retreats after another impressive quarter.

Inside Amazon's sprawling fulfillment center in Robbinsville, New Jersey, where the online retailer takes in and ships out millions of products. Ben Fox Rubin/CNET

How does Amazon follow up a surprise quarterly profit? By watching its stock price rocket to an all-time high the next morning.

Shares rose much as 20 percent Friday following quarterly results the day before to boost the e-commerce giant's market value by about $36 billion -- roughly the market value of Macy's and Gap combined -- to a total value of about $265 billion. The stock reached $556.55, up 15 percent, in morning trading. By the end of the day, the stock closed at $529.42, up about 10 percent.

It's part of the topsy-turvy Wall Street expectations game. Amazon eked out a $92 million profit on expectations of another loss, and investors cheered. Apple earlier in the week posted a monster quarterly profit of $10.7 billion (yes, billion), yet investors wiped out $30 billion of its market value because its iPhone numbers weren't quite perfect.

But it puts in perspective what the difference a big name in a hot sector can do when it exceeds expectations. By Wall Street's view, Amazon now is worth more than Walmart -- the biggest retailer in the world -- despite the fact that Walmart's sales dwarf all other US merchants and Amazon has posted a total profit of $625 million over the past four years. Walmart's profit was $3.3 billion -- in just its last quarter.

"We continue to point out that Amazon still remains in the early innings in terms of international Prime selection," Benchmark analyst Daniel Kurnos said in a note Friday, referring to Amazon's membership program, "and expect they will be able to become category leaders in several important domestic verticals," such as apparel or electronics.

Amazon's stock tends to fluctuate wildly after it reports quarterly results, but the reason for Friday's enthusiasm may stem from the hope that Amazon is finally take its foot off the gas on spending. The company has a reputation for forgoing short-term profits for long-term investments, which helped transform Amazon from a mere online bookstore into a device maker, TV studio and purveyor of millions of products. That legendary spending spree has also resulting in some duds, such as its failed attempt to offer its own smartphone.

Investors for years have been waiting for Amazon to slow its spending so it can finally start reaping profits. It's possible the second quarter results signal that change, and if they do it means Amazon wouldn't be coming out with as many moonshot projects going forward.

That also means Amazon could be on the road to more consistent profits. But investors may have to wait a little a longer for that. For the current quarter, Amazon projected operating income to come in between a loss of $480 million and a profit of $70 million, compared with a $544 million loss last year. Sales are expected to be $23.3 billion to $25.5 billion, mostly ahead of analysts' estimates.

Wall Street analysts likewise predict more strong results, as the company's Amazon Web Services division -- which rents out datacenter space to other companies -- continues to grow. Also, Amazon's 20th anniversary Prime Day sale this month likely helped push revenue higher.

Amazon Prime, a $99-a-year membership service that includes unlimited two-day shipping, remains a crucial part of the company's growth, since members tend to spend nearly twice as much on Amazon than non-Prime customers. However, Amazon is now facing a new wave of competitors to Prime, with both Walmart and newcomer developing their own membership services.

As long as Amazon can keep Prime growing -- membership is now about 44 million in the US -- those tiny profits could start building up to something bigger.

Update, 2:45 p.m. PT: Added closing stock price.