Amazon's AI Story Is a 'Game Changer,' Says Mizuho

You see, it is a game changer. What was it about Amazon's numbers that you liked? Well, um, yeah, I definitely think it was a game changer, just because the acceleration and AWS's growth on the top line at 37%, I think is really convinced more people that AI is, you know, improving their overall business. Um, and then the disclosure they gave in terms of how I, um, is impacting them on the silicon side, um, you know, with their graphics on and training, um, Chip, they're really well positioned. So all in all, you know, the bookings growth, the backlog and the commentary from Andy Jassy about what's to come. I think set this, this stock up to to continue to like outperform going forward, for sure. What Amazon said is its chip business where it rents compute capacity but based on their in-house silicon right has a revenue run rate $25 billion. Dwell on that a little bit. Are you kind of extrapolating out and saying, wow, that's another line of business where Amazon can get some upside? Yeah, I think it's, it's it's showing how much, you know, benefit that they get from having their own custom chip. Not only does it enable them to get supply right, because it's so difficult to get point graphics processors from Nvidia. Um, it also enables them to offer that to their customers, probably at a lower cost. Um, so you win on both sides, supply and price or cost. And you saw that because their margins are going up, uh, very healthily. And I think that's also encouraging to investors because all these companies are going to be continuing to spend. They need more compute, more capacity. But what the worry would be is they see compression on the margins of the cash flow. And even though Amazon's cash flow was negative for the last 12 months, their margins in their ORS business are increasingly going higher. I think some would point out in the chip business as well, that they're not surrendering any margin to Nvidia if they go to in-house silicon. So let me ask you this. Do you have any Amazon Echo devices in your household? Yeah, I have one. Okay. And how many days a week would you say you have an Amazon Prime package on your doorstep? Uh, every other day at least. Okay, so what I found so interesting were the other data points. The non-financial right where they say, here is some evidence that people that use Alexa, plus that consumer facing AI are more likely to sign up for Prime, are more likely to spend in a greater basket size on Amazon.com. Less talked about this morning. I mean, is anyone brought that up on your desk? Actually, no. I think people are so focused on the AI, the data center, the compute side of the business because it drives all the profit, um, that they've kind of yeah, I wouldn't say overlooked, but they're not they're not as concerned or worried about e-commerce where they're doing very well. Um, and I think that's a good thing. But I agree, like you, you would like to see them get more value or credit for their breadth, their their strength, their traction, their brand and people. What they are saying is why does Amazon trade at kind of a mid to low 20s for multiple? When you look at Costco and Walmart look at their valuations. Appreciate you bringing it back to the stock I mean we're a household where my echo device competes with my baby is the alarm clock every morning. And we've not really moved beyond that. On the AI side, you heard Ryan talk about Apple. Was the AI safety trade in a way? Uh, in Apple, this is a hell of a reaction in this stock. There's no sentimentality here for Tim Cook's final earnings call. You talk about that in your note on the stock in the trade. What are you making in all of that. Well I would tell people that the move, you know, down 9% is is probably more than the actual results would suggest. But that's because the stock has materially outperformed tech in the Mac seven over the last 30 days. So there was a ton of money. Hiding in Apple is like the anti safety AI trade that's going to come out. And it's going back to Microsoft and Amazon and some others. But what I would make of it is, is that they're going to probably continue to see higher risk and struggling a bit, not only in iPhone to get components in supply, but their services business missed. And that's where they get a lot of profit margin. And it sounds like that's going to remain at a lower growth rate as you look into the end of the year. And my concern, and this is why I wouldn't be chasing Apple even down 9%, is that they're going into their iPhone 18 launch cycle. And I feel like the risk is, is that you go into a new product cycle and you can't get enough components. Okay. What does that mean for your ability to beat and raise numbers? I don't think it's good. So this is a people story as well, right? Like Tim Cook, a core facet of his career has been his ability to manage the supply chain. And he made the admission that they misjudged demand. They miscalculated how many processes they should order in September in the launch cycle for the 18. He hands the reins to Turner, who is a product guy. I mean, how worrying is that, Ben, for people finding you today? I don't actually think people are all that nervous or worried about the management transition. I think they're going to be status quo. They're going to focus on the supply chain. That's what they do best. Um, I think they need to have a good flashy launch with this foldable product. Actually, that could go a long way to helping turn this. Uh, even though that was probably put into place well before he took the reins. But it would help, at least on the margin, convince people that they've got some new innovations, some exciting new products coming. But end of day, it's about how much are consumers going to be willing to spend. They're going to raise the price of the iPhone probably by $200. And they they're doing really well, actually when Max, uh, where they raise prices and they can't ship enough product to meet demand. But the question is going to be come early next year after the launch quarter, you know, in the fall is behind them and they've raised prices. Is demand holding up as well? Um, given the higher price and we'll have to wait and find out. I think it's it's undetermined right now.