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.
This makes me wonder if Amazon the retailer requires having access to AWS services “at cost” in order to be profitable. If AWS was spun out completely, would Amazon proper be able to afford their AWS bill of AWS had a profit margin on it.
I’m sure Amazon.com would be fine, but it would take a chunk out of their margins. I’m also sure that their X% ownership of the spun out AWS would cover the difference.
It doesn’t help that now other potential growth markets for AWS, like the EU, now are getting pushed to have more and more data sovereignty due to the administrations antipathy towards allies. Musk can whine all he wants about the EU, but that’s like complaining about customers that don’t want to buy your products instead of building a good product they trust and want to buy.
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.
That depends on the business. People are not going to stop eating so small margins in the grocery business isn't a negative - the revenue is mostly recurring and recession proof (some people might switch from buying meat to rice+beans, but other people are going to stop eating out and so it balances).
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.
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)
> software companies shouldnt trade on a P/E of 300
You are playing pretty fast and loose with your definition of a "software company" when you include Amazon and NVIDIA in your list. Amazon is many things but it is not a "software company" and neither is "NVIDIA".
I've always found it confusing how run of the mill SaaS trades at multiples assuming decades of doing business. The amount of change in software businesses has been massive and being able to run a successful software business even for 15 years from 2010-2025 requires a great deal of strategy and foresight and more likely than not that's not enough. Considering how these dynamics have been accelerating as technology accelerates it just seemed so off that the market was landing on a 20-30x multiples for software businesses that don't have much moat (e.g. swathes of B2B CRUD apps).
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)
Was software ever a moat? Software typically only gave companies a small window of opportunity to turn a fleeting software advantage into a more resilient moat (network effects, switching costs etc.)
I have read that numerous places and it seems plausible but it is beyond my investing experience.
I think the new nominated Fed Chair is also a hard money advocate and is spooking USD alternatives (gold, silver, BTC, etc.) But hard money can be quite hard on the economy, so that could limit growth.
Not saying you're wrong, necessarily, but as I type this the Dow is at 49,700. Would you expect the collapse of the yen carry trade to cause the Dow to collapse as well? Or is the Dow not high-growth enough for people to put yen-carry money into it?
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.
You're agreeing with GP but it's a flawed premise: a chatbot doesn't have to be limited to entertainment and trivia, as anyone who has used one for productivity knows.
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.
In what way is the long term impact of LLMs being underestimated? If anything, it seems that it has been overestimated in the past years and that something other than LLMs will be needed to reach the original scaled LLM hope of AGI.
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)
Many people are spending significantly more time every day engaging with AI chatbots than they spend engaging with Google, and Google is one of the most valuable companies in the world.
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.
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.
IMO AWS should be spun out as a separate company.
This makes me wonder if Amazon the retailer requires having access to AWS services “at cost” in order to be profitable. If AWS was spun out completely, would Amazon proper be able to afford their AWS bill of AWS had a profit margin on it.
I’m sure Amazon.com would be fine, but it would take a chunk out of their margins. I’m also sure that their X% ownership of the spun out AWS would cover the difference.
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It doesn’t help that now other potential growth markets for AWS, like the EU, now are getting pushed to have more and more data sovereignty due to the administrations antipathy towards allies. Musk can whine all he wants about the EU, but that’s like complaining about customers that don’t want to buy your products instead of building a good product they trust and want to buy.
If they were separate businesses it would make no sense to merge them. It would be like Microsoft buying Walmart.
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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.
That depends on the business. People are not going to stop eating so small margins in the grocery business isn't a negative - the revenue is mostly recurring and recession proof (some people might switch from buying meat to rice+beans, but other people are going to stop eating out and so it balances).
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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.
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.
With tech companies, investors buy future growth, not stable businesses.
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.
Hmmm. And I wonder who bought all that NVDA today and what's suddenly so compelling about the price.
Certainly couldn't be someone in government trying to pin the NDX100 index.
https://youtube.com/watch?v=LZ-bkTG30Ns
They always say it's about "AI," but it never turns out to be about AI. I wonder what's it about this time?
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)
> software companies shouldnt trade on a P/E of 300
You are playing pretty fast and loose with your definition of a "software company" when you include Amazon and NVIDIA in your list. Amazon is many things but it is not a "software company" and neither is "NVIDIA".
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I've always found it confusing how run of the mill SaaS trades at multiples assuming decades of doing business. The amount of change in software businesses has been massive and being able to run a successful software business even for 15 years from 2010-2025 requires a great deal of strategy and foresight and more likely than not that's not enough. Considering how these dynamics have been accelerating as technology accelerates it just seemed so off that the market was landing on a 20-30x multiples for software businesses that don't have much moat (e.g. swathes of B2B CRUD apps).
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Why would you put more money into Nvidia or Tesla right now? Don't you think they are priced in already?
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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)
Was software ever a moat? Software typically only gave companies a small window of opportunity to turn a fleeting software advantage into a more resilient moat (network effects, switching costs etc.)
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The collapse of the yen carry trade.
I have read that numerous places and it seems plausible but it is beyond my investing experience.
I think the new nominated Fed Chair is also a hard money advocate and is spooking USD alternatives (gold, silver, BTC, etc.) But hard money can be quite hard on the economy, so that could limit growth.
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Not saying you're wrong, necessarily, but as I type this the Dow is at 49,700. Would you expect the collapse of the yen carry trade to cause the Dow to collapse as well? Or is the Dow not high-growth enough for people to put yen-carry money into it?
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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.
It’s not an AI bubble - it’s an inflated P/E bubble.
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.
Amazon missed earnings and promptly doubled down on AI spending:
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.
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.
You're agreeing with GP but it's a flawed premise: a chatbot doesn't have to be limited to entertainment and trivia, as anyone who has used one for productivity knows.
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.
In what way is the long term impact of LLMs being underestimated? If anything, it seems that it has been overestimated in the past years and that something other than LLMs will be needed to reach the original scaled LLM hope of AGI.
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By your logic the only way to achieve number 2 is to keep pumping number 1.
This type of commentary reminds of people propping up these LLM MLMs.
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)
Many people are spending significantly more time every day engaging with AI chatbots than they spend engaging with Google, and Google is one of the most valuable companies in the world.
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If only that is what investors have figured out.
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.
I know it feels comforting to say this, but deep down you have to realize that saying things confidently does not cause them to become true.
Theres a real problem with people who are too tech-induced: youre disconnected from how the average person interacts with stuff.
Was that comforting? At least the commentator came with a source
Why should anyone take your sensible first statement seriously if your second statement is so easily verifiably false?
Some of these AI critical posts really are an exercise in Gell Mann Amnesia, man.
Im still waiting to read about macro-level mass-lay offs or insane productivity leaps.
Where are the results, tell me? What insanely great products have been shipped by people leveraging/building on top of LLMs...?
Yeah, silence. As usual.
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