Amazon’s Cloud Business Outshines Prime Days: Why AWS Is the Real Stock Driver

Key Points

Amazon (NASDAQ: AMZN) is preparing for Prime Day, which may attract trader interest, but the company’s most compelling asset for investors lies in its cloud services. Amazon Web Services (AWS) currently generates the bulk of Amazon’s operating profits despite representing a smaller share of overall revenue, and it is growing at a faster pace than the retail segments.

AWS accounted for about $37.6 billion in first‑quarter revenue, or roughly 21 % of Amazon’s total sales. While the commerce divisions produced $39.8 billion internationally and $104 billion in North America, they contribute far less to profitability. In fact, AWS delivered 59 % of Amazon’s operating profit in Q1—a proportion that remains consistent throughout the year.

The cloud unit’s 28 % year‑over‑year growth outpaces the 12 % growth in North American commerce and the 19 % rise in international sales. As the most profitable and fastest‑growing segment, AWS is shaping Amazon’s strategic direction. The company plans to invest $200 billion in data‑center capital expenditures in 2024 to meet rising demand for AI workloads, and its custom chips are already generating triple‑digit revenue growth.

From a valuation standpoint, Amazon’s stock is trading at an attractive cash‑flow multiple, down about 15 % from its recent peak. This presents a potential entry point for investors seeking exposure to a high‑margin, high‑growth business.

Image source: The Motley Fool.

AWS is small, but mighty

In Q1, AWS accounted for only 21 % of Amazon’s total revenue, generating about $37.6 billion. However, this figure is dwarfed by its commerce divisions, which generated $39.8 billion in international revenue and $104 billion in North American revenue. That’s a huge difference, but revenue isn’t everything.

Commerce and cloud computing have two entirely different margin profiles, and despite AWS’s small size, it actually accounted for 59 % of Amazon’s operating profits in Q1. That’s not a one-time anomaly that occurred in Q1; this trend persists throughout the year.

With AWS generating the majority of Amazon’s profits, it steers the company’s direction. Furthermore, AWS is growing substantially faster than its commerce businesses, too. In Q1, North America commerce grew 12 % year over year while international sales rose 19 %. AWS rose at a 28 % rate. When the most profitable segment is also the fastest‑growing, that bodes well for the company, and is a big reason why Amazon’s profits are growing faster than its revenue.

This pattern is likely to continue, as Amazon is investing a jaw‑dropping $200 billion in data‑center capital expenditures this year to meet demand for AI workloads. That kind of spending needs to result in solid, long‑term growth, and Amazon’s CEO Andy Jassy has already told investors that customers are lined up to use the majority of this newly built computing power once it’s online. That’s great news for investors, and with Amazon’s custom chips driving triple‑digit revenue growth in that segment, the company has a lot of positives in its AWS division.

To top things off, Amazon’s stock currently looks like a bit of a Prime Day deal itself.

AMZN Price to CFO Per Share (TTM) data by YCharts

Amazon’s stock is seldom this cheap from a cash‑flow perspective, and with the stock down about 15 % from its all‑time high, now is the perfect time to buy some shares.

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