Yesterday was TACO magnificent. Bettors in the predictions markets cleaned up also.
There are three lessons:
+ Don’t sell out/go to cash/ buy bonds anticipating the worst — like bombing Iran back to the Stone Age. The stockmarket doesn’t reflect Washington madness long-term. It reflects corporate earnings. If earnings do well, the market rises. If they don’t, well, you shouldn’t be in those stocks.
+ Today’s stockmarket world rewards companies that sell zero-marginal cost things — think AI, software, cyber security protection, Costco membership etc.
+ Prefer companies whose CEOs make a good presentation on Bubble Vision, e.g. Crowdstrike’s CEO, who delicately danced his mumbo jumbo on Cramer last night…And today…look at CRWD, down 6.1%. Well, you can’t have everything. Jensen is great on TV. Sometime NVDA goes up.
The Peter Lynch Theory of investing
Lynch said buy stocks whose products you like. Don’t buy companies whose products you hate. Sometimes this works well. For example, Nike, whose products have lately become awful. Ditto. Microsoft’s products — Windows 11, Office 365 and Copilot are just plain awful. I don’t own NKE or MSFT, or many others, whose products I don’t like. Sometimes, it’s confusing. I like their products and services but the market doesn’t like their stocks, e.g. Apple and Amazon. Except today. Go figure.
There’s a big piece on Amazon below.
First, let’s try something. This gets granular. So, stick with me.
Windows versus Apple
Many readers have asked.
“Why do you (Harry) use Windows, when Apple is so much easier?””
Answer:
Apple is and isn’t easier. It’s what you’re used to that’s easier.
Let’s start with physical stuff;
+ Apple doesn’t have a laptop with a touch screen. They have iPads and iPhones with touch screens, but not a laptop. That’s insanity. All the guys in the upper west side Apple store agree with me. Apple laptops without a touch screen are insane.
+ Apple’s keyboards suck when compared to Lenovo’s, which are far easier and more precise to type on. Trust me on that one. I use my Lenovo X1 Carbon all day every day.
+ Lenovo laptops have a little red pointing stick in the middle of their keyboard.
It moves the mouse. It’s fast and easy to use. It’s really precise. You can use an external mouse and the keypad. But the red button is for me. My hand stays on my keyboard. I use my reed stick all day, every day.
+ I write in something called an “editor.” It’s just for getting words down, moving them around and getting to zillions of files instantly. To my brain, an editor is for writing. A word processor is for formatting. Mixing them together is a stupid mistake. Microsoft Word is kluge — neither fish nor fowl. I’m a writer and an analyst. I want to get words down on paper fast. I want to move words around fast. I want to be able to “program” my keystrokes, so I can move fast. I can’t do that in Word. I can that in my 50-year old MS-DOS editor called The Semware Editor, which runs flawlessly under all Windows variations.
+ Microsoft, however, has lost its way. Windows 11 needs big “fixes.” The computer trade press publishes regular pieces begging Microsoft for fixes — some as simple as making the Windows 11 taskbar smaller — a trivial feat in Windows 10.
+ Jim Cramer (and others like me) rant about Microsoft losing the AI plot. CoPilot is a disaster, etc. I sold my MSFT a while back. It keeps falling. I use Windows 10 flawlessly every day. Funnily, Microsoft “stopped” support of Windows 10 last fall, but it chickened out (shades of TACO) and I’m now on a one-year extended warranty. And free, too.
+ Apple, sadly, has lost its plot also. I walked the Apple store yesterday searching for a “goodie.” I had just sold our New York apartment. My bank account has ascended mightily. The only thing I could find was an iPhone 17 Pro Max — which I will buy once I summon up the effort to move all my apps from my present iPhone 16 Pro.
The iPhone 17 has a significantly better camera. Here’s is me on the 17 (the first one) and me on the 16. I tried to get them to sit next to each other. But some software somewhere is not cooperating.
I’ve had to put them both through Photoshop to reduce their size. Even a biased observer like my wife Susan, who took both pictures, had to admit that the 17 was much better. I am about to buy an iPhone 17 Pro Max. Hopefully, it will cull favors with the power that be.
Apple has iPads. I’ve given away all the ones i bought over the years. They’re gorgeous. But you got to hold them with one hand. That limits fast typing. Of course, I could buy a klugy add-on keyboard. But the weight soars and the keyboard lacks fast typing. It’s a horrid keyboard.
Hence, I’m back to my Lenovo X1 Carbon laptop which is the weight of a “light” Apple MacBook, even the one misleadingly named Macbook “Air”. Sadly, Microsoft screwed up the keyboard of the latest X1 Carbon with a dedicated (and useless) CoPilot key and another one for fingerprints. But I’ve loaded up on older X1 Carbon machines I like. — like seven laptops. I’ll be set for life. I am experimenting with Windows 11 to see if I can get it useable, since I recognize the inevitable. I’ve found some new tools. If you’re interested, send me an email.
For now, I’m holding my Apple shares, but not my Microsoft. I’m bulking up on Amazon.
In AI, Google and Amazon shine
For many companies tacking AI onto the name of a service they’re selling is a sufficient(and necessary) marketing ploy. Google and Amazon are different. They are aggressively using AI to enhance what they’re selling. And they’re succeeding mightlily.
Google business is finding me more products I don’t need. Last night it found me a toilet plunger — don’t ask why. (It worked.)
Quietly, it’s been finding much more — how to fix things, and simple facts like how many people live in Iran.
It also has Gemini (think ChatGPT). Gemini pretty amazing. I post this blog using software called WordPress which runs somewhere in the cloud. But so does Gemini. When I edit on WordPress in the left of my screen, Gemini (which is also in the cloud) and which sits on the right side of my scren can, somehow, read what I’m writing and make suggstions. Which totally freaked me out the first time..
It pointed to my spelling mistakes and asked if I’d like it to correct them? It told me I had many spellling mistakes. I was hurt. Until I realized this was software (not a human) in a far distance datacenter. And I wasn’t expected to buy it flowers because of my appalling spelling trnasgressions.
I am so impressed with Gemini and Perplexity that I now pay both of them monthly stipends.
Amazon is even mre freaky. In the old days I’d read customer writeups to check if the product would work for me. But Amazon now has Rufus. And it’s much better and faster.
It even remembers what I bought months ago and tells me (without my asking) if the new gadget I’m looking at will work with the gadget I bought earlier from Amazon.
Which is really freaky. (AI is freaking me out.) I’m not the only one who loves Amazon:
The Economist loves Amazon
This comes from the latest Economist. Read what their columnist Schumpeter wrote about Amazon:
AMAZONIANS LIKE to think of their company as frugal-at least compared with many of their tech rivals. Forget the chocolatey treats and massages available to techies in Silicon Valley. At Amazon’s home in Seattle, the most cherished freebies are bananas, distributed from a food truck in the courtyard. This parsimonious culture runs deep. In its heart the e-commerce giant has a shopkeeper’s sense of thriftiness. Except every so often, when it throws caution to the wind and goes on a spending spree. It is on one now. JPMorgan Chase, a bank, calls it “Capexapalooza”.
It’s a historic gamble. No company has ever matched the $200bn of capital expenditure that Amazon has earmarked for this year, which is partly to be financed by blockbuster bond sales. It is mostly aimed at supporting Amazon Web Services (AWS), its cloud-computing arm, in the race to build artificial-intelligence infrastructure including data centres and the power they rely on. To add to the bill, Amazon has also said it will invest up to $50bn in OpenAI, which would be almost quadruple what Microsoft, its arch-rival, has committed to the maker of ChatGPT since 2019.
Amazon says that strong demand is driving the binge. AWS’s sales grew at the fastest pace in more than three years last quarter, and despite $250bn of capex in the past three years, Andy Jassy, Amazon’s boss, said it is selling cloud capacity as fast as it is built.
Yet powerful competitive forces are also at play. Over the past 20 years AWS has been the pioneer in cloud computing, and a big provider of AI services. It is still leader of the pack, but since OpenAI launched ChatGPT in 2022, its main cloud rivals, Microsoft’s Azure and Alphabet’s Google Cloud, have grown much faster, chipping away at its lead. By doubling down on AI data centres, and seeking to loosen Microsoft’s grip on OpenAI, Amazon looks determined to regain its stride.
The company has a history of swinging for the fences. Back in 2015 Jeff Bezos, its founder, wrote with his inimitable nerdiness of the “truncated outcome distribution” when attempting to hit home runs. In baseball, the maximum pay-off was four runs. In business, “every once in a while, when you step up to the plate, you can score 1,000 runs.” That letter to shareholders was penned at the start of one spree that scored big time. In 2016-17 Amazon sharply increased spending on logistics and AWS, leading to several years of higher profit margins. But its next capex binge, during the covid-19 pandemic, was initially a bust, as it built far more warehouses than were needed. In 2023 it curtailed spending-just as Microsoft started to ramp it up in anticipation of an AI bonanza. Since then Amazon has been batting more aggressively.
AWS has a few things in its favour. One is its sheer breadth of customers. Its burgeoning relationship with OpenAI adds to one with Anthropic, the lab behind Claude. Model-makers are among the biggest sources of cloud demand in the near term, using “gobs and gobs of compute”, as Mr Jassy has put it. But with almost a third of the global market for cloud services, well ahead of Azure and Google Cloud, AWS has much to gain if companies beyond Silicon Valley start to embrace AI more fully. For now, many are still hesitant. But it will take at least 18 months to put this year’s capex to operational use. By then it is possible that AI agents, which can reason in steps, use tools and engage with other bots, will have led to a surge in enterprise spending.
Working with both OpenAI and Anthropic will position Amazon well for that moment. “The Everything Store” remains true to its name, with AWS now able to offer customers ways to build on the two leading families of models as well as numerous others, including its own, Nova. It also supports a variety of chips, including those of Nvidia and its cheaper in-house alternative, Trainium.
Microsoft and Google offer variety, too. Azure provides models from OpenAI and Anthropic, as does Google, which also has its own top-tier model, Gemini, and chips called TPUs. But at a time when all hyperscalers say that demand for their AI services outstrips supply, Amazon’s two rivals may find it harder to allocate scarce computational resources to their cloud customers. That is because their other big businesses-Microsoft’s Office products and Google’s search-are more profitable than their cloud services, making them a more obvious priority for AI chips. With Amazon, things are different. The margins of Amazon.com are paltry compared with those of AWS, and it has a culture of doing a lot with little. Cloud customers may be more likely to come first.
Raising the Rufus
Wall Street has mixed feelings about Amazon’s capex splurge. Although its shares have outperformed Microsoft’s this year, they are still down by 8%, mostly because of doubts about the return on its spending spree. In the short term, depreciation costs stemming from the new investments will rise before revenue from them starts to flow. Brent Thill of Jefferies, a bank, says investors are also worried that the growing costs of AI infrastructure will weaken cloud margins even over the long term.
Another source of worry is the rise of AI agents embedded in chatbots that can shop on a user’s behalf. They could threaten Amazon’s core business-bypassing Amazon.com or robbing it of relationships with customers and advertisers. Yet the company is better placed than its sceptics fear. Shortly after it struck its deal with OpenAI, the model-maker shelved plans to launch a shopping service called Instant Checkout. Rufus, Amazon’s agentic-AI shopping assistant, helped generate $12bn of incremental annualised sales last year.
Other model-makers such as Google are muscling into e-commerce, but for now Amazon appears to be fending off the threat. By all means call the spending spree Capexapalooza. But it does not mean Amazon will end up a looza. ■
Favorite cartoons
I have only one today:
Bruce, where are you? I nedd more great cartoons.
TACO stands for Trump Always Chickens Out.
Australia is easier than Greenland.
Both Australians and Greenlanders will sell you their mother-in-law.
But the Australians, being more honest, will deliver.
I was born there. I know.
See you tomorrow. — Harry Newton
