Amazon Prime Day is not the catalyst it once was

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Amazon.com Inc.’s annual Prime Day shows e-commerce isn’t the driver it once was for the stock as investor attention shifts to the company’s fastest growing cloud computing unit growing and profitable.

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For the past four years, the stock has declined in the week of two-day sales in which the retail giant discounts swathes of items. The first four years starting in 2015 saw Amazon shares gain more than two percent on average in the week of the event, according to data compiled by Bloomberg.

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The focus on cloud computing only increased as Amazon Web Services became the company’s primary source of operating income, amid increased investor scrutiny over who will benefit the most from the launch of AI applications.

Most people invest in Amazon for both e-commerce and AWS, Eric Clark, portfolio manager at Accuvest Global Advisors, said in an interview. But with artificial intelligence being part of the conversation nearly every minute of every day, it’s clearly the opportunity for AWS and the potential implications of AI that are proving to be more exciting.

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Prime Day, which begins on Tuesday, is likely to generate about $5 billion in incremental revenue this year, according to JPMorgan & Chase Co. analyst Doug Anmuth. While it would have increased 13% from last year, the pace of growth has slowed steadily each year since a 30% increase in 2020, Anmuth wrote in a recent research note.

Even though Amazon’s retail business accounted for nearly two-thirds of sales last year, the fastest-growing AWS unit was responsible for all of the company’s $12.2 billion in operating profit. While AWS growth slowed to an all-time low in the first quarter, analysts are optimistic that demand for so-called generative AI applications is poised to reinvigorate sales.

Amazon shares are up 55% this year as the company works to cut spending in part by eliminating at least 27,000 jobs. Despite the advance, it is still about 30% below its 2021 peak.

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In April, Amazon unveiled generative AI technology aimed at cloud customers and a marketplace for AI tools from other companies. It is also investing $100 million to help customers develop and deploy new types of AI products as it competes with the cloud computing units of Microsoft Corp. and Alphabet Inc.

Prime Day will be a good branding opportunity to capture not only sales but also new customers on Amazon’s web, said Sylvia Jablonski, co-founder and chief investment officer of Defiance ETFs. However, Amazon’s future is most likely in AWS and its participation in AI innovation and growth.

With the assistance of Jeran Wittenstein and Tom Contiliano.

Bloomberg. com

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