Amazon Prime Day isn’t the catalyst it used to be

Amazon.com Inc.’s annual Prime Day shows that e-commerce isn’t 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, the stock has fallen in the week of the two-day sale in which the retail giant discounts swathes of items. The first four years beginning in 2015 saw Amazon shares average a gain of more than 2% in the week of the event, according to data compiled by Bloomberg.

The focus on cloud computing has only increased as Amazon Web Services grew into the company’s main source of operating income, amid greater investor scrutiny over who stands to 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 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 implications” that’s proving to be more attractive.

Prime Day, which began Tuesday, is likely to generate about $5 billion of incremental revenue this year, according to JPMorgan analyst Doug Anmuth. While that would be up 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 almost two-thirds of sales last year, the faster-growing AWS unit was responsible for all of the company’s $12.2 billion in operating profit. 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 reinvigorate sales.

Amazon shares have rallied 55% this year, as the company works to slash expenses in part by eliminating at least 27,000 jobs. Despite the advance, it’s still about 30% below its 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’s also investing $100 million to help customers develop and deploy new kinds 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 new customers into 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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