Amazon Prime Day is no longer the catalyst it used to be

Amazon.com Inc.’s annual Prime Day. shows that e-commerce is no longer the driver it once was for the stock, as investor focus shifts to the company’s faster-growing and profitable cloud computing unit.

In the past four years, stocks have fallen in the week of the two-day sale in which the retail giant is discounting masses of items. The first four years from 2015 saw Amazon shares gain more than 2% on average the week of the event, according to data compiled by Bloomberg.

The focus on cloud computing has only increased as Amazon Web Services has become the company’s main source of operating income amid increased investor scrutiny over who will benefit most from the rollout of artificial intelligence 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 now that “AI is part of the conversation almost every minute of every day, it’s clearly the AWS capabilities and the potential AI implications” that are proving more appealing.

Prime Day, which begins on Tuesday, is likely to generate about $5 billion in incremental revenue this year, according to JPMorgan analyst Doug Anmuth. While that would be 13% more than last year, the rate of growth has slowed steadily each year since a 30% increase in 2020, Anmuth wrote in a recent research note.

While Amazon’s retail business accounted for nearly two-thirds of revenue last year, the faster-growing AWS unit accounted for its entire operating profit of $12.2 billion. While growth at AWS slowed to a record low in the first quarter, analysts are optimistic that demand for so-called generative AI applications is poised to revive sales.

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

In April, Amazon unveiled generative AI technology aimed at cloud customers, as well as 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 while competing with Microsoft Corp.’s cloud computing units. and Alphabet Inc.

“Prime Day will be a great branding opportunity to bring in not only sales but new customers on the Amazon web,” said Sylvia Jablonski, co-founder and chief investment officer at Defiance ETFs. “However, the future for Amazon is very likely in AWS and its participation in the innovation and growth of AI.”

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