We are less than two months into the year, and Amazon’s (NASDAQ: AMZN | AMZN Price Prediction) stock is in the midst of a collapse. It is already down 10%, while the S&P 500 is up 1%. To make matters worse for its investors, the drop is long-lived. Amazon’s stock is up 34% in the last five years, while the S&P is up 81%. Even Apple (NASDAQ: AAPL), which has been out of favor with many investors, is up 124% over the same period.
What happened? Amazon has other things; most of the company’s revenue comes from an old-world business. Started as a primitive online book seller in 1994, it remains largely an e-commerce company with mediocre e-commerce earnings. Last year, 81% of its $717 billion came from e-commerce. The operating income from e-commerce was 43% of the total,
AWS, the more successful unit, was 19% of revenue and 57% of operating income. But AWS has fierce competition. Amazon’s market share in cloud computing has been dropping. In the fourth quarter of last year, it was 29%. Microsoft’s (NASDAQ: MSFT) share moved up to 20%. As these and Google jockey for position, there are concerns that aggressive pricing has become part of the market-share war.
Amazon’s AI play does not appear to put it at the head of the pack. OpenAI and Google hold those positions now. In the enterprise segment of the AI industry, OpenAI is the leader. To position itself in the AI sector, the company said it would spend $200 billion this year. It is a massive investment in a business which is still in its infancy, no matter how critical it will be to tech in the future. Despite the size of its investment, the entire sectorwill spend $700 billion om data centers this year.
If there is anxiety about AI beyond the jobs it may take, it is the fear of overbuilding AI data centers.
Amazon’s core business is old. Its investment in the unproven future is colossal
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