As Holidays Approach, No One Cares About Amazon’s Biggest Business
Amazon quietly became America's largest company by revenue, yet holiday shoppers and Wall Street investors seem far more focused on its AI ambitions than its massive e-commerce engine, and that split attention may be hiding a serious risk.
Amazon (NASDAQ: AMZN | AMZN Price Prediction) is America’s dominant retailer. In this year’s Fortune 500, it overtook Walmart (NYSE: WMT) to become the nation’s largest company by revenue. Walmart held that position for years. As the holiday shopping season has begun, no one seems to care that almost 80% of Amazon’s revenue is e-commerce-based. Arguably, most of its $2.7 trillion market cap comes from its AWS cloud business and the promise of massive success in the AI sector.
E-commerce gives Amazon two advantages. First, it provides a stable revenue base. In the most recent quarter, Amazon’s North America e-commerce division revenue rose 6% to $112.8 billion. International e-commerce revenue rose 5% to $45.1 billion. Perhaps more importantly, operating income for North America rose 82% to $8.7 billion. That is above the AWS operating income growth of 56% to $17.8 billion.
Amazon’s fourth-quarter e-commerce revenue always surges because of the holidays. Operating income will likely jump as well.
Amazon is already tying its cloud growth to AI. The same is true of the No. 2 cloud provider, Microsoft (NASDAQ: MSFT). Each faces hurdles that seem to be growing. One is blocks on AI data centers in hundreds of cities, towns, and counties nationwide. Another is that the megatechs have turned cash flow negative for the first time in decades as they spend hundreds of billions of dollars on data center construction and the Nvidia (NASDAQ: NVDA) chips that run them. A price war is also underway as AI customers keep demanding lower prices for AI products. The AI sector’s margins are in a vise. Revenue is under pressure while expenses are soaring. AI valuation growth assumes triple-digit revenue increases.
Holiday shoppers will be out in stores and on e-commerce sites in the tens of millions. It is worth remembering that Amazon is taking a huge risk with its balance sheet and cloud/AI revenue. Its e-commerce is lost in the transition.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
