Amazon is in a prime position post-earnings.
Shares of the e-commerce giant soared more than 10% in after-hours trade following the company's fourth-quarter earnings report Thursday after the bell. The report topped Wall Street's estimates on earnings and revenue following what the company called a "record" holiday sales season.
Even with this impressive move in Amazon, there's still room for upside when it comes to the broader technology sector, Neel Shah, senior trader at Peak6 Capital Management, told CNBC's "Trading Nation" on Thursday.
"Think about how we got here," Shah said of the broad market's bull run. "We got here by buybacks, we got here by [price-to-earnings multiple] expansion and people buying stocks. So, I think that's going to take us higher. PE expansion could continue. So, even though people are complaining that valuations are high, I think there's still room for upside here."
Still, as Microsoft gains traction in cloud computing with its Azure business, which competes with Amazon Web Services, Amazon could be faced with a tough decision: Cut margins in order to stay competitive or let Microsoft win.
"Microsoft came out last night, had really good numbers [for] cloud, and I think, with Amazon, it's going to drive the market going forward," particularly if the cloud business stays strong, Shah said. "But if they say they're sacrificing margins, watch out below, and watch out below for the market as well."
Amazon Web Services grew 35% in the third quarter, trailing estimates and Microsoft Azure's 59% growth in the same time frame. This quarter, Azure grew 62%. A recent Goldman Sachs survey showed Azure was also getting more usage at large companies than Amazon Web Services, which remains the market leader by revenue.
Even with that rivalry heating up, Shah remained bullish on the prospects for tech, emphasizing that — contrary to many market watchers' assertions that today's market looks a lot like that of the 1999 dotcom bubble — we're a long way off from the overheated conditions Wall Street saw before that bubble burst.
"Markets do rhyme, but this time, it is different. Valuations aren't egregious," he said, noting that 1999 saw at least five days when the broad market dropped 5% in one session and multiple drops of more than 10%.
"Volatility was significantly higher in 1999, [and that's] obviously not the case right now," the trader said. "I think you have to trade this market. You have to kind of be willing to buy it when nobody wants to and just tactically trade it going forward."
As for key levels, Shah was watching the 3,181 level on S&P 500 e-Mini Futures contracts, the low from when Iran fired missiles at bases housing U.S. troops in Iraq on Jan. 7.
"I think that's an important level to watch," Shah said, telling CNBC that if S&P e-Mini Futures break below that level, it could be an opportunity to "tactically trade the panic."
Disclosure: Peak6 Capital Management has positions in Amazon, Microsoft, the Nasdaq 100 and the S&P 500 e-Mini Futures.