Hi YXI friends,

Should it be concerning that Bezos just keeps selling Amazon shares this year? This was previously a source of market concern as AMZN shares had struggled getting past $200 until last week.

I personally think it’s perfectly normal that a retired founder bags some chips after the stock rises 40% in a year. Bezos may need a new super yacht or want to channel more money into Blue Origin. Who knows.

The good news is that finally, the market seems to have got past Bezos’ selling. Let’s dive into the business performance, valuation, and price technicals to see where we stand as investors.

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.

1. It’s All About AWS…Right?

Technically speaking, among the three Amazon business segments, AWS is the smallest division, accounting for only 17% of the quarterly revenue.

However, while AWS may be the smallest division, it is the fastest growing segment with a 19% YoY growth rate in Q3 revenue. There has been high demand for AI and machine learning services, especially for Generative AI.

The management has described Amazon’s AI business as multi-billion-dollar revenue with triple-digit growth - it is “growing more than 3 times faster at this stage of its evolution as AWS itself grew”.

Amazon is also making investment in AI-powered services with custom silicon, Trainium for training and Inferentia for inference. The unique selling point of Amazon’s custom silicon is their low price relative to the high performance.

Furthermore, AWS is very high margin in nature. In the latest quarter, AWS printed an operating income margin of 38%, miles ahead of the low-single-digit margins of North America and International divisions.

It should be noted that the improved AWS operating margin was partly (by 200bp) due to extending server life by two years. This as an impact of reducing annual expenses by spreading out the costs over more years. It does feel like an accounting massage to manage the profitability metrics during an AI investment cycle.

2. Amazon Maintains Double-digit Growth

Subscribe to YX Premium to read the rest.