Amazon Prime Day (July 16 and 17) is set to bring exceptional deals across millions of products with discounts of up to 50% from top brands. While many are expected to spend hundreds, if not thousands, on shopping—an Amazon Prime Day investment challenge has recently gone viral and aims to counter one's spending and boost their savings instead.
The challenge entails investing the same amount in Amazon stock for every purchase you make—and now is the best time to do so since Amazon shares are trading at nearly six times cheaper than in June 2023, despite recently reaching a market capitalisation of $2.01 trillion.
Although Amazon's current price-to-earnings (P/E) ratio of 53.98 as of July 15 may seem costly for some investors, it is significantly below the company's average P/E ratio of 89.42 and the record high of 309.88 from the previous year. If you had invested $1,000 during last year's Amazon Prime Day, that investment would now be worth nearly $1,500, marking a 50% profit in one year.
Amazon is currently at a critical juncture, expanding its AI capabilities while revamping its e-commerce operations amid stiff competition from Walmart, Target, and Temu. While sales from both online and physical stores increased year over year (YoY) in Q1 2024, income from third-party reseller services and subscription services remained flat. However, net sales for the quarter ending in March increased by 13% YoY to $143.3 billion, driven by a 17% revenue growth in the Amazon Web Services (AWS) division, which reached $25 billion. Analysts remain optimistic about Amazon's prospects, as net income tripled YoY to $10.4 billion in Q1, and the company continues to gain market share in the cloud computing sector.
New Robotics Fulfilment Centres for Enhanced Productivity and Safety
In May, Amazon announced plans to reduce prices by up to 30% on over 4,000 grocery items available through its Fresh service. This strategy comes when competitors like Walmart and Target also slash prices amid high inflation. According to eMarketer, Walmart is expected to capture 27% of digital grocery sales in 2024, compared to Amazon's forecast of 18.5%.
Amazon aims to boost cash flows and productivity by improving customer experience, enhancing employee safety, and reducing operational costs by using generative AI tools in its workflows. The company operates 11 robotic fulfilment centres worldwide and announced new ones in Asturias, Spain, and Sagamihara City, Japan, in Q1. These centres enhance operational safety, worker experience, and customer delivery by minimising redundant tasks such as sorting and heavy lifting. Amazon reported a 30% improvement in recordable incident rates and a 60% reduction in lost time incident rates globally in the new decade.
To further enhance customer experience, Amazon has introduced the GenAI-powered assistant Rufus in its shopping app, helping customers save time and make informed purchases. US sellers can also leverage GenAI features to automatically parse data and create engaging product listings, saving time and effort.
AWS Reaches $100 Billion Annual Revenue Run Rate
Amazon Web Services (AWS), which rents cloud-based computing power and related services to businesses, has become a significant profit driver for Amazon. Last year, AWS accounted for nearly 66% of Amazon's $37 billion in operating income and has started offering GenAI services to clients, competing with Microsoft Azure and Google Cloud. During the Q1 earnings call, Amazon CEO Andy Jassy highlighted that AWS has reached a $100 billion annual revenue run rate, a significant portion related to AI.
In July, Amazon announced several AI partnerships across industries, including collaborations with Workday to develop GenAI solutions and Exscientia to offer AI and machine learning services for drug discovery platforms. In March, Amazon invested an additional $2.75 billion in AI startup and chatbot Claude developer Anthropic, completing a $4 billion deal. Anthropic's Claude competes with the likes of OpenAI's ChatGPT. Additionally, Amazon announced a $230 million commitment to startups to accelerate the creation of GenAI applications.
AWS plans to invest billions of dollars in Saudi Arabia and Mexico to provide tech startups with more ways to run their applications. Another $10 billion will be allocated to constructing two data centre complexes in Mississippi, creating 1,000 jobs. This year, Amazon intends to invest over $750 million in technology, training, and programmes to prioritise safety across its network.
Big Plans for Alexa
According to a Reuters report, Amazon is considering a significant overhaul of its Alexa voice assistant product to include a paid conversational GenAI feature. An Amazon spokesperson mentioned that the company has already integrated generative AI into various components of Alexa and is working on large-scale implementation.
Bank of America Securities (BofA) analysts noted that the potential fee reflects Amazon's "ongoing focus on profitability," estimating that the company could generate $600 million in sales with a 10% adoption rate among nearly 100 million active Alexa users. Despite its inception a decade ago, Alexa's mainstream use in query resolution and innovative electronics has struggled with the advent of chatbots like ChatGPT. In an April letter to shareholders, CEO Jassy assured that an "even more intelligent and capable Alexa" was being developed.
Wall Street Analysts Retain Positive Outlook on Amazon Shares
According to TipRanks, 44 Wall Street analysts covering Amazon shares in the last three months have given it a "strong-buy" rating, with an average 12-month target price of $222.51 per share. This implies an upside of over 15% from the closing price of $192.72 on July 15. BofA analysts recently estimated that the 10th Annual Prime Day event could drive $13 billion in consumer spending over the two days, likely boosting Amazon's advertising operations.
Brian White of Monness, Crespi, Hardt & Co, and Joe Feldman of Telsey Advisory have maintained their "buy" ratings on the stock with target prices of $225 and $215, respectively. Walls Fargo Analyst Ken Gawrelski reiterated his "buy" rating last month and increased the target price to $239 from $234, describing Amazon as his "signature pick."
Wells Fargo forecasts another beat-and-raise quarter for Amazon, with the e-commerce company's management announcing net sales guidance of up to $149 billion for Q2.
Amazon's strategic initiatives, expanding AI capabilities, and robust performance in cloud computing, coupled with the upcoming Prime Day, signal a promising future for the company. Investors and consumers alike will be closely watching how these developments unfold.
Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.
