Amazon is a better investment opportunity than Google currently due to more attractive pricing and strong long-term fundamentals in AI and automation.

and I believe you're pretty heavily invested in Mata Libre, Amazon, but but also Reddit and some other names, too.

But how about we jump to our other Mag 7 name in the portfolio. So Amazon has been a holding since February of this year when we bought it in the 190 range per share and it has corrected over the last few weeks.

So returns are a little lower than they were when Amazon was trading at as high as $270 per share.

So, it might be premature to call this one of our biggest winners, but a 35% return in 5 months is definitely not anything uh too shabby. And I I still want to bring it up just so we have another chance to compare it against Google, too, especially since you just mentioned that you probably wouldn't add to Google here.

So, do you feel differently about Amazon after it's run up a bit?

Well, we should say that we record this when basically Amazon and also Reddit just reported earnings and Amazon's earnings reaction is pretty good. They will open probably 15% up today.

So, I just want to say that I think Amazon's prices are a lot more attractive than Google now being up 15%, you know, a bit of that leeway is gone. But still, I would say that it's probably, if you ask me, a better opportunity right now to deploy capital.

But it's also already 10% of our intrinsic value portfolio, and I probably wouldn't make it a larger bet just considering that. But if you would hand me a dollar today and you would tell me, well, it has to go to either Google or Amazon, I would go for Amazon.

>> The story for them both is definitely similar in some ways. Google is guiding for $200 billion in capex and Amazon is also guiding for roughly $200 billion in capex 2.

Google has raised more than $50 billion of long-term debt this year and Amazon has actually raised close to $90 billion. And so for context, when we're talking about $200 billion in capex spend, that is roughly the size of the economy of Greece, entire European country.

You got two companies in the US spending twice that amount or you know between the two of them twice that amount.

And like Google, Amazon's Q2 free cash flow has also turned negative, which again for companies doing hundreds of billions of dollars in revenue and and producing massive amounts of of operating cap cash flow for many many years, it was definitely not something I had on my radar that their free cash flow would go negative because they're making such massive capital expenditures.

>> Well, at least Amazon shareholders are used to negative free cash flow. you know, Google shareholders can't say the same. And I actually think that if you just look at the earnings report of Amazon and you compare it to Google, and you could also compare to Meta, I don't really see the same threat by, you know, the market's judgment of whether that's good earnings result or not.

If I look at Amazon's earnings, I personally like them and I can understand why their stock is up 15%. But I also like Google and I also to some extent like Meta. So I feel like the market is just judging them differently right now.

I believe it's primarily that Google has a high valuation, so it's seen differently than Amazon, but Meta is just in in a bad spot generally with the market.

And just to get to Amazon's earnings, you also have to make similar adjustments to their earnings because Amazon benefited from a $17 billion markup on its stake in anthropic just like Google had the SpaceX equity.

So, when you see a trade at, you know, price to operating cash flow of 12 or 13, that seems lower than it actually is. after adjustments, Amazon would trade closer to 17 or 18 times.

But I would still say that's maturely lower than Google. And if you ask me, pretty attractive for a company of that quality.

And obviously, it's not just about the metrics. It's not enough to just look at a PE or price to operating cash flow. I just look at Amazon's business, and I see so many opportunities.

Amazon has literally built one of the largest chip businesses in the world in the last couple of years, and barely anyone has even noticed. And according to Andy Jesse, the CEO of Amazon nowadays, that business has a $20 billion annual run rate.

And if they were to sell chips externally, it could even be double than that or closer to 50 billion, which is just insane when you think about it.

And if you combine that with you know AWS which has also had phenomenal growth and one of the fastest that we've seen for a long long time and then all the marketplace data and all the other businesses that it operates.

I just can't help myself. I think Amazon is one of the most vertically integrated players at still a reasonable valuation.

>> It feels like Amazon is one of the the few players in the market that is connected to the AI race but also not really likely to be hurt by it. They sort of benefit from an asymmetry there.

If AI is as successful as hoped, Amazon will certainly benefit from it massively through Amazon Web Services. it's chip business just internal use making the the company more efficient and then also maybe AI agents drive even more e-commerce sales

e-commerce is only like 20% of all retail spending in the US a lot of people still go to brickandmortar stores and AI could be a tailwind for driving more online shopping and if AI can't generate the returns investors hope for Amazon they just cut back on this capex and you still own the same highquality business as before with cash flows being invested probably elsewhere or maybe return to shareholders.

And so I I also remember an episode you did with Clay a while ago and uh it was actually his last episode here on the podcast and you two talked about Marcato Libre and Amazon and especially the opportunity that comes from automation

and so e-commerce has gotten a reputation for being a tough business which is probably fair given that it's nothing but retail at its core and the reason players like Amazon and Melly though are so successful is that they've been building high margin businesses around their e-commerce operations and the consumer subscriptions that are connected to it.

So, think Amazon Prime. And so, some of the other layers that they've moved into are obviously cloud computing, payments, banking, advertising, video streaming, and then also of course my favorite Whole Foods.

But uh your argument is that automation could make the core business much more profitable. Is that how you think about it? >> Yeah. More profitable, more efficient. I think if you just look at the numbers today, the core business is already growing faster than it has in the past and also more profitable than it has in the past.

And knowing Amazon and you know its scale economy shared model, I could imagine they pass the cost benefits on to consumers. But even then, you will have a better and healthier business overall.

I think it just shows up in other parts of the business that you know then again strengthen the flywheel which is something that we talk about with you know every company that in our opinion has a flywheel and the big opportunity in automation primarily comes from the fact that Amazon is the world's largest company by revenue.

So every incremental point of retail margin lands on a revenue base of more than $700 billion.

We just compared you know Google which is at 475 billion which is also insane and and the labor in the warehouses is one of the biggest cost factor by far and that's why Amazon has been integrating robots into its fulfillment operations for more than a decade now but at least to me it seems like now we're at a point where new buildings are designed around automation and robots are becoming increasingly capable and I think they will have an even bigger impact than in the past on the efficiency and the cost basis of Amazon.

I don't expect for the record, you know, for this to have a material impact in the next 2 or 3 years, but over the next decade, I believe this can save tens of billions of dollars in cost, potentially even more than that.

And all of this is a long-winded way of saying I like both Amazon and Google a lot. And it's mainly because both of them feel like they would benefit massively from AI. But if AI should be a disappointment in whatever way that would be, they still would be fine and they still would be two of the best businesses in the world.

>> I guess you could say just strictly from looking at the stock since Amazon has benefited less from the AI hype cycle. There's probably less for the stock to lose in terms of giving up gains.

And we just spent the last 10 minutes explaining this, but you could also take a shortcut and just look at the performance of the last 12 months. Google is up 75%. Amazon is up 0.5% at the time of recording.

So it does feel like one has a lot more room to catch up.

And and a good example for why that might not end up being the case is that they just went through some major and unexpected business changes. And while I think they were the right thing to do and the right decision, those things just wouldn't happen at, you know, Google, Amazon, or Netflix, those sorts of companies.