Question: does Amazon's retail business matter for analysts at all? It drives the majority of revenue for the company but a much, much smaller amount of profit. Does Wall Street care about Amazon's core business one iota?
The margins on tech/cloud are just so astronomically higher than retail. Places like Walmart or Costco are fighting for <5% profit margins, IIRC its closer to 2%. Quick search says AWS has about a 35% profit margin and about 50-60% of the operating profit of amazon but 17% of the Revenue. With those numbers it makes sense to focus on AWS.
I'd run the numbers and AWS and Amazon's ad business together accounted for 100% of Amazon's market cap. The e-commerce division is essentially worthless as far as Wall Street is concerned, other than a loss-leader inventory source for the ad business.
Big revenue + small margins in a stable business, IMO, is a massive liability for the bottom line; any downturn in business and that becomes big revenue + big losses. Even if cloud is making money, it can wipe a lot of that out.
From the point of view of running an enterprise that lasts, though, diversification is important. Financially diversification is probably, in general, bad for EPS. But if you want to run a lasting empire, it's best to not tie it to just a narrow thing.
It definitely boosts their overall value as a company. If one share equals a slice of "what the company is worth now" + future growth, steady long-run revenue sets a solid baseline for the stock price.
Growth is all that matters. There is perceived to be much less potential growth in retail than there is in tech. You have to remember, most people literally think of computers in magical terms, and what's possible is usually more anchored by what they see in movies than what they experience in real life. So believing that Sam Altman is going to manage to capture all economic output of labor is seen as a realistic belief. Believing that Amazon will replace all retail in the world is obviously never going to happen.
This insanity was going to break at some point. Now hopefully these trillions of dollars of losses might finally allow the price of old DDR4 memory I've been trying to acquire to finally recover.
wall street analysts are starting to realise that software companies shouldnt trade on a P/E of 300.
DocuSign is currently valued at 30 times its annual earnings. Adobe is currently 16. Amazon is 28 -- has been as high as 50 recently. NVDA is 44.
Investors are basically starting to realise that enterprise are not going to subscribe to software like DocuSign for 50 years. They'll probably just move to odoo or zohosign or something and save a lot of money. So its probably a better bet to put that capital into something like Nvidia or Tesla or whatever. it also looks like the US Fed isn't going to cut rates, so capital is getting more expensive.
Of course, if you are a CEO its great to blame all this on AI and then tell your investors you are increasing AI in your business (see: salesforce whose stock price is down 42% in a year and is now trading at 25x earnings)
Every tech company assumed they would be the benefactors, not victims, of AI. And investors now see that without the alleged AI growth, these companies at best look like stable utilities, not high growth stocks. At worse companies look like they make highly replaceable software as software stops being a moat.
Moreover they look like large, inefficient organizations with a lot of human veto points that prevent innovation (requiring more human coordination is an anti moat now)
Anecdotally, read somewhere that delivery people are going idle. The Orange One wrecked everything with tariffs, and the ripple of destruction is slowly taking its course. That's before we take into account massive outflows of cheap labor and fired government workers.
Yeah, the stock price is still higher than any price it obtained prior to Oct 2024. I think people are just shocked that stock prices may go up and down rather than up only.
It is encouraging to see that investors are punishing what is the greatest misallocation of capital since the dotcom bubble. Investors have figured out that AI is limited to probabilistic and annoying chatbots that are for entertainment and for looking up trivia questions.
I was disagreeing with just your last statement, but then I did a little research: about 80% of revenue is from chatbots and 20% from APIs. So +1 on your comment.
Bear with me here, I actually do have a point to make: I took my stepdaughter out for breakfast this morning. She is a financial wizard specializing in running large cities, and to explain to her the current craziness of overspending on AI infrastructure, I described "exponential spending increases for linear economic value increases." I may be wrong about this, but I am all for targeting the sweet spot of more efficient smaller AI models that are fit to purpose for specific use cases.
Oh boy, are you going to be in for a rude awakening. Might I ask what is your exposure? Because this does not line up with what I am witnessing day to day at all.
This type of commentary reminds me of the people during the dot com boom who were adamant that e-commerce was all film flam and would never take off.
Consider that it is possible that both (1) we are in an investment bubble and (2) we are underestimating the long term impact of LLMs and perhaps mispredicting where they will land.
You’ll get downvoted for your second statement. I think investors are struggling to see how AI turns into more money for consumers if it. It’s one thing to exclaim how your productivity is up, but does that translate into more profit and larger customer base if you’re a business? I very much doubt consumers will pay more than dollars a month for an LLM and I also very much doubt the ad market can grow large enough to cover the spend on that (ad market is plenty big and driven by other economic factors)
Unfortunately, it seems investors now think that all paid software will be replaced by AI generated software, somehow open source projects laundered through generative AI models should finally convince enterprise customers to go with free.
blinding-streak|24 days ago
ecshafer|24 days ago
IMO AWS should be spun out as a separate company.
fmajid|24 days ago
mlyle|24 days ago
From the point of view of running an enterprise that lasts, though, diversification is important. Financially diversification is probably, in general, bad for EPS. But if you want to run a lasting empire, it's best to not tie it to just a narrow thing.
legitster|24 days ago
ottah|24 days ago
softwaredoug|24 days ago
mmastrac|24 days ago
tucnak|24 days ago
DaedalusII|24 days ago
DocuSign is currently valued at 30 times its annual earnings. Adobe is currently 16. Amazon is 28 -- has been as high as 50 recently. NVDA is 44.
Investors are basically starting to realise that enterprise are not going to subscribe to software like DocuSign for 50 years. They'll probably just move to odoo or zohosign or something and save a lot of money. So its probably a better bet to put that capital into something like Nvidia or Tesla or whatever. it also looks like the US Fed isn't going to cut rates, so capital is getting more expensive.
Of course, if you are a CEO its great to blame all this on AI and then tell your investors you are increasing AI in your business (see: salesforce whose stock price is down 42% in a year and is now trading at 25x earnings)
softwaredoug|24 days ago
Moreover they look like large, inefficient organizations with a lot of human veto points that prevent innovation (requiring more human coordination is an anti moat now)
mullingitover|24 days ago
renegade-otter|24 days ago
the_absurdist|24 days ago
Certainly couldn't be someone in government trying to pin the NDX100 index.
truegoric|24 days ago
smithcoin|24 days ago
tim333|24 days ago
zlkanter|24 days ago
https://finance.yahoo.com/news/amazon-plans-200b-ai-spending...
It is encouraging to see that investors are punishing what is the greatest misallocation of capital since the dotcom bubble. Investors have figured out that AI is limited to probabilistic and annoying chatbots that are for entertainment and for looking up trivia questions.
mark_l_watson|24 days ago
Bear with me here, I actually do have a point to make: I took my stepdaughter out for breakfast this morning. She is a financial wizard specializing in running large cities, and to explain to her the current craziness of overspending on AI infrastructure, I described "exponential spending increases for linear economic value increases." I may be wrong about this, but I am all for targeting the sweet spot of more efficient smaller AI models that are fit to purpose for specific use cases.
pfisherman|24 days ago
This type of commentary reminds me of the people during the dot com boom who were adamant that e-commerce was all film flam and would never take off.
Consider that it is possible that both (1) we are in an investment bubble and (2) we are underestimating the long term impact of LLMs and perhaps mispredicting where they will land.
bpodgursky|24 days ago
goalieca|24 days ago
symfrog|24 days ago
Unfortunately, it seems investors now think that all paid software will be replaced by AI generated software, somehow open source projects laundered through generative AI models should finally convince enterprise customers to go with free.
danielbln|24 days ago
Some of these AI critical posts really are an exercise in Gell Mann Amnesia, man.