10 ms·

Amazon plunge continues $1T wipeout as AI bubble fears ignite sell-off

92 points by truegoric 8mo ago

blinding-streak 8mo ago
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?
- softwaredoug 8mo ago
  With tech companies, investors buy future growth, not stable businesses.
- legitster 8mo ago
  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.
- mlyle 8mo ago
  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.
  - bluGill 8mo ago
    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).
    - mlyle 8mo ago
      Just because people need a grocery store doesn't mean that you're guaranteed to make money running one. multiplying huge revenue by a small percentage to get a big positive number to multiplying huge revenue by a small negative percentage to get a big negative number So that's how Kroger managed to lose billions over the last couple of quarters, or how small changes in shoplifting/shrinkage based on store makeup can cause losses to some chains, etc.
      - frumper 8mo ago
        https://massmarketretailers.com/kroger-delivers-solid-quarter-despite-2-6-billion-impairment/ https://massmarketretailers.com/kroger-delivers-solid-quarte... They didn't lose money because of their grocery operations. Those margins have increased slightly.
        mlyle 8mo ago
        They lost money because of their grocery delivery operations. Their margins have increased slightly if you ignore the part where their efforts at grocery fulfillment blew up. Just because an industry is essential doesn't mean that every firm in it makes money.
        frumper 8mo ago
        I agree, all kinds of grocery stores have failed over the years. Kroger's just isn't a good example of a failing store for a lot of reasons. They aren't a stellar investment, but they are also up from 1 year ago and 5 years, so investor's don't look like they agree with your summary of the business.
- ecshafer 8mo ago
  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.
  - softwaredoug 8mo ago
    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.
  - mbreese 8mo ago
    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.
    - mekdoonggi 8mo ago
      Consider the reverse. If AWS didn't have a large guaranteed customer in the form of Amazon, would they still be able to develop their products with perfect knowledge of the needs?
      - ivan_gammel 8mo ago
        If AWS becomes a separate business now, they may be able to build better products, given a bit less focus on one large customer (Idk if Amazon.com has any priority in their product roadmaps now)
    - 8mo ago
- ottah 8mo ago
  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.
- fmajid 8mo ago
  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.
tucnak 8mo ago
They always say it's about "AI," but it never turns out to be about AI. I wonder what's it about this time?
- mullingitover 8mo ago
  The collapse of the yen carry trade.
  - bhouston 8mo ago
    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.
    - robocat 8mo ago
      We should just blame "the willies". Investment is all about belief. When the root cause is the willies, then we hallucinate reasons together. Crypto and memes have demonstrated us a lot about the drives of individual investors. Unfortunately it seems that professional investors are not that much more rational (from my limited personal experience with a small hedge fund, and from my years of looking at markets). My favourite term has always been "taking profits" which is generated by the technical analysis (I loath that term) of looking at the prices: taking an effect and publishing a cause (trying to sound smart). We are deeply irrational beings; often the more you go up a professional ladder the more rationalisation you see. During unstable periods, we see lots of weird side-effects and there is a lot that doesn't seem to make sense. Edit: a better meme could be "The use of AI by funds is destabilising markets" Disclaimer: I am not a professional investor. I am a cynic.
      - mullingitover 8mo ago
        Speculation involves belief, sure. However, there is hard math involved in markets as well, and the yen carry trade equation exists whether you believe in it or not.
zlkanter 8mo ago
Amazon missed earnings and promptly doubled down on AI spending: https://finance.yahoo.com/news/amazon-plans-200b-ai-spending-surge-sinking-stock-after-earnings-173054820.html 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.
- bpodgursky 8mo ago
  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.
  - chucksta 8mo ago
    Was that comforting? At least the commentator came with a source
  - sdf2erf 8mo ago
    Theres a real problem with people who are too tech-induced: youre disconnected from how the average person interacts with stuff.
- symfrog 8mo ago
  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.
- danielbln 8mo ago
  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.
  - 8mo ago
mmastrac 8mo ago
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.
smithcoin 8mo ago
It’s not an AI bubble - it’s an inflated P/E bubble.
- tim333 8mo ago
  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.
the_absurdist 8mo ago
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.
truegoric 8mo ago
https://youtube.com/watch?v=LZ-bkTG30Ns https://youtube.com/watch?v=LZ-bkTG30Ns

92 points by truegoric 8mo ago

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?

softwaredoug 8mo ago
With tech companies, investors buy future growth, not stable businesses.
legitster 8mo ago
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.
mlyle 8mo ago
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.
- bluGill 8mo ago
  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).
  - mlyle 8mo ago
    Just because people need a grocery store doesn't mean that you're guaranteed to make money running one. multiplying huge revenue by a small percentage to get a big positive number to multiplying huge revenue by a small negative percentage to get a big negative number So that's how Kroger managed to lose billions over the last couple of quarters, or how small changes in shoplifting/shrinkage based on store makeup can cause losses to some chains, etc.
    - frumper 8mo ago
      https://massmarketretailers.com/kroger-delivers-solid-quarter-despite-2-6-billion-impairment/ https://massmarketretailers.com/kroger-delivers-solid-quarte... They didn't lose money because of their grocery operations. Those margins have increased slightly.
      - mlyle 8mo ago
        They lost money because of their grocery delivery operations. Their margins have increased slightly if you ignore the part where their efforts at grocery fulfillment blew up. Just because an industry is essential doesn't mean that every firm in it makes money.
        frumper 8mo ago
        I agree, all kinds of grocery stores have failed over the years. Kroger's just isn't a good example of a failing store for a lot of reasons. They aren't a stellar investment, but they are also up from 1 year ago and 5 years, so investor's don't look like they agree with your summary of the business.
ecshafer 8mo ago
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.
- softwaredoug 8mo ago
  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.
- mbreese 8mo ago
  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.
  - mekdoonggi 8mo ago
    Consider the reverse. If AWS didn't have a large guaranteed customer in the form of Amazon, would they still be able to develop their products with perfect knowledge of the needs?
    - ivan_gammel 8mo ago
      If AWS becomes a separate business now, they may be able to build better products, given a bit less focus on one large customer (Idk if Amazon.com has any priority in their product roadmaps now)
  - 8mo ago
ottah 8mo ago
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.
fmajid 8mo ago
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.

tucnak 8mo ago

They always say it's about "AI," but it never turns out to be about AI. I wonder what's it about this time?

mullingitover 8mo ago
The collapse of the yen carry trade.
- bhouston 8mo ago
  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.
  - robocat 8mo ago
    We should just blame "the willies". Investment is all about belief. When the root cause is the willies, then we hallucinate reasons together. Crypto and memes have demonstrated us a lot about the drives of individual investors. Unfortunately it seems that professional investors are not that much more rational (from my limited personal experience with a small hedge fund, and from my years of looking at markets). My favourite term has always been "taking profits" which is generated by the technical analysis (I loath that term) of looking at the prices: taking an effect and publishing a cause (trying to sound smart). We are deeply irrational beings; often the more you go up a professional ladder the more rationalisation you see. During unstable periods, we see lots of weird side-effects and there is a lot that doesn't seem to make sense. Edit: a better meme could be "The use of AI by funds is destabilising markets" Disclaimer: I am not a professional investor. I am a cynic.
    - mullingitover 8mo ago
      Speculation involves belief, sure. However, there is hard math involved in markets as well, and the yen carry trade equation exists whether you believe in it or not.

zlkanter 8mo ago

Amazon missed earnings and promptly doubled down on AI spending: https://finance.yahoo.com/news/amazon-plans-200b-ai-spending-surge-sinking-stock-after-earnings-173054820.html 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.

bpodgursky 8mo ago
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.
- chucksta 8mo ago
  Was that comforting? At least the commentator came with a source
- sdf2erf 8mo ago
  Theres a real problem with people who are too tech-induced: youre disconnected from how the average person interacts with stuff.
symfrog 8mo ago
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.
danielbln 8mo ago
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.
- 8mo ago

mmastrac 8mo ago

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.

smithcoin 8mo ago

It’s not an AI bubble - it’s an inflated P/E bubble.

tim333 8mo ago
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.

the_absurdist 8mo ago

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.

truegoric 8mo ago

https://youtube.com/watch?v=LZ-bkTG30Ns https://youtube.com/watch?v=LZ-bkTG30Ns