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The annual Prime Day event from Amazon.com (AMZN) does not move the market as it once did, as investors focus more on the company’s cloud computing business for signs of growth. In the past four years, Amazon has fallen in the week of the two-day Prime Day sale, when the company discounts many items to bolster sales. Before that, the first four years of the Prime Day event that began in 2015 saw Amazon shares climb more than +2% the week of the event.
Market attention in recent years for Amazon.com has shifted to its cloud computing business, Amazon Web Services (AWS), which has become the company’s primary source of operating income. Growth in AWS has accelerated as the business stands to benefit the most from the rollout of artificial intelligence applications. On Sunday, CICC initiated coverage on Amazon.com with a recommendation of outperform and a price target of $140.
According to JPMorgan Chase, Amazon.com’s Prime Day event, which begins Tuesday, is likely to generate about $5 billion of revenue this year. While that would be up +13% from last year, the pace of growth has slowed steadily since a 30% increase in 2020. Accuvest Global Advisors said, “Most people invest in Amazon for both” e-commerce and AWS, but with “AI being part of the conversation kind of almost every minute of every day, it’s clearly the AWS opportunity and the potential AI applications” that’s proving to be more attractive.
Despite Amazon.com’s retail business accounting for almost 65% of sales last year, the faster-growing AWS unit was responsible for all of the company’s $12.2 billion operating profit. Amazon shares have rallied 55% this year after the company slashed expenses and eliminated at least 27,000 positions. Even with this year’s gains, the stock is still about 30% below its 2021 all-time high. While growth at its AWS unit slowed to a record low in Q1 of this year, analysts are optimistic that demand for generative AI applications will accelerate and reinvigorate sales for the company’s cloud-computing business.
Amazon.com is attempting to benefit from the AI craze. In April, the company unveiled generative AI technology aimed at cloud customers as well as a marketplace for AI tools from other companies. It also invested $100 million to help customers develop and use new kinds of AI products as it competes with the cloud computing units of Microsoft (MSFT) and Alphabet (GOOGL). Defiance ETFs said, “Prime Day will be a good branding opportunity to capture not only sales but new customers into the Amazon web. However, the future for Amazon is very likely in AWS and its participation in the innovation and growth of AI.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
