The 'OBSESSION' that is hurting Amazon, as its stock falls behind Nasdaq
Amazon
.com Inc. is struggling to keep up. The e-commerce giant's shares have been significantly trailing the tech-heavy Nasdaq 100 Index this year, according to a recent Bloomberg report. As the report says: In a stock market obsessed with artificial intelligence, Amazon.com is losing ground.
The gap widened sharply after Amazon's disappointing earnings report on July 31. While the Nasdaq 100 is up 12% for the year, Amazon's stock has gained just 4.6%, placing it in the bottom half of the index's performers. The company's stock is currently trading at a near-record discount to the index—a stark contrast to the premium it commanded for most of the last two decades.
The primary cause for the recent slide was slower-than-expected growth in Amazon's cloud-computing business, Amazon Web Services (AWS). This has fueled investor concern that the company is losing market share to competitors. For many investors, Amazon's stock hasn't seen the same boost from AI investments as other tech giants like Microsoft and Meta Platforms.
"For a lot of investors, Amazon just isn't a pure-play way to play a theme you believe in,' said Eric Clark, a portfolio manager quoted by Bloomberg. "People want purity in their investments. And if you want that, Amazon looks like a company that's watered down by all the different businesses.'
While Amazon still generates the majority of its sales from e-commerce, its wide-ranging business portfolio—from AWS to Whole Foods—is now being seen as a weakness rather than a strength. The company's diverse investments, which were long a draw for growth-oriented investors, are now seen as a drag on its stock price in an AI-dominated market.
Growing competition from Microsoft and Google in Cloud 'hurting'
Despite remaining the market leader in cloud computing, AWS's 17% revenue growth in the second quarter was overshadowed by its rivals. For comparison, Microsoft's Azure unit saw a 39% increase in sales, while Google Cloud's sales grew by 32%.
Meanwhile, other companies heavily focused on building AI computing capacity are seeing their shares skyrocket. Oracle Corp., which recently partnered with OpenAI to supply massive data center power, has seen its stock price surge by nearly 50% this year. The shares of CoreWeave Inc., an Nvidia-backed cloud computing provider, have more than doubled since its March IPO.
'This new cohort of hyperscalers are going to be the companies we're talking about in five years time,' said Clare Pleydell-Bouverie, co-manager of the Liontrust Global Innovation team. "We're not seeing the same AI induced acceleration" from Amazon, she noted.
Amazon stock remains one of the most popular on Wall Street
Despite the recent setbacks, many investors remain confident in Amazon's long-term potential. They believe the company's AI investments will eventually pay off by improving efficiency and customer targeting across its many businesses.
The stock remains one of the most-popular on Wall Street, with over 90% of the 82 analysts who cover it rating it a "buy," according to Bloomberg data. This is a higher buy percentage than either Meta or Alphabet Inc. Eric Clark believes Amazon looks "under-appreciated" right now, but he's confident that its AI investments, especially within AWS, will eventually boost its bottom line.
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