Hi YXI friends,
Today, we will examine Amazon closely as part of our Systematic Portfolio holdings. AMZN currently commands a unanimous Long vote across all four of our models, though it is a difficult name to trade. Despite being a Mag-7 and a near-$3 trillion company, the stock sits only 35% above its Covid-era high.
My argument is that the valuation is attributable almost entirely to AWS, with retail and advertising as free add-ons. The tension is the roughly $220 billion of capital spending it takes to feed that growth, which has already taken free cash flow negative. At four times the size of the 2021 buildout, this one also runs on assets with a shorter useful life.
On balance, valuation is not a deterrent to entry, and I am happy following the Systematic Portfolio choice on this one. What I am watching is the quality of the funding behind the AWS backlog, as the AI labs are still paying for compute with equity raises rather than their own cash flow.
DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.