No, they have about as much debt on the books. So double it.
AMZN has a little over $200 billion in debt currently, against that $716 billion in annual revenue. Even if you give them $400 billion in new debt, they’ll be at 1.5x that total figure in annual revenue within 18 months. And they have more debt than anyone. Others - like GOOG as you mentioned, are in far better shape.
I'm sure they can cover it. The question though is what happens to the stock price. And does the revenue justify the expenses.
Going back to the example above, what’s the worst case for Amazon - the most highly leveraged company? Say they get to $900 billion annual revenue / $600 billion debt, and the profit turnaround from investment takes longer than expected. What happens? Stock levels out for 1-2 years at most? Stock drops 5% per year for 2 years? I think it’s more like the former. A 20-25% pullback…..yeah, that’s not happening.
Now, what’s the best case? Maybe they get to something more like $950 million revenue / $550 million debt, and turn profits quickly? What happens then? 15% bump every year moving forward? 20% per year? Both are possible. Upside seems to far outweigh risk, the way I see it.
I think they all know now that the current investment builds wont pay off (and most will never be built) but they're in a race to be the last one standing. Theyre pot committed. There's no off ramp.
Hmm….that’s quite a take. Not sure that I can really wrap my mind around the 5 or 6 largest and most lucrative companies on earth - each with the most brilliant and strategic minds on the planet - all simultaneously deciding to just have an expensive dick measuring contest with each other. Needless to say, I disagree.
I said before recently that I think the ones that can self fund this race will be the winners, even with inferior products. Alphabet, im looking at you.
I think it is near unanimous that they are ALL going to be winners….eventually. Who wins the most and who wins the soonest are the only question marks.
The elephant in the room - everyone saying “AI profits won’t justify the investments!” and repeating that broken record are not really aware of what’s coming. The reason why they aren’t aware of what’s coming is because the Mag 7 have been intentionally coy about that, because it’s certainly going to absolutely piss everyone off….while at the same time adding a costly necessity to everyone’s lives.
Where we are at now is the same place where we were in 1995 or 1996, when you could get a little computer program called Netscape, and get on this new fangled thing called “the internet”, for FREE, whenever you wanted to, for as long as you wanted. Then, capitalism conquered, and now it’s a $200+ required monthly expense for people to have high speed WiFi, plus a Smart Phone with high speed internet anywhere. And only 4 or 5 companies essentially control that entire market, in this country.
Now? ChatGPT and other similar free AI services are essentially Netscape. Some have already started trying to monetize it with monthly subscriptions. 10 years from now, one of the Mag 7 will be charging you out the asś for all of it. The free services will not be able to get the memory capacity or computing power required to keep up with these massive data-center driven entities backed by trillions in capital investment. You’ll be baited to pay Amazon $400 - $500 per month for an online shopping / phone / TV / internet bundle, with Alexa connecting it all and feeding you suggestions to each profit center. If you don’t like that, you can opt for the GFiber / YouTubeTV / Gemini package. Corporations are also going to pay out the asś for work suites that give them the bandwidth and the software needed to cut headcount and employees at an astonishing level.
Think about it like this - what if the internet just got invented, and you as a company could actually afford to build the infrastructure to control 25-30% of all the traffic? What would you do?
Fair point. But we must also remember that stock prices arent set by the average of what analysts think it should be. Its set by what the buyer thinks. If 100 people think a stock is worthless, and 1 thinks its worth $100....the stock price is $100, so long as he's buying. Sure, for large companies with tons of public equity this sort of settles out, the fan boys cant buy it all, but really we see that first with rising short bets, not price drops, right? And with all this self dealing and dumb passive money buying these company's stock....well maybe that makes the bubble. Did the fan boys drive it into top tier status, and then the dumb passive money keeps it there? Maybe.
80% of the market is institutional money. The price of the stock in this case is largely driven by what that 80% thinks. They compete on the margins, how big their beliefs are in Google vs. Amazon, Microsoft vs. Meta, etc. But you won’t find any of those 80% that think any of those above companies aren’t set up for the highest level of success in this new environment.
Don’t hear what I’m not saying though. I’m not calling for 50% stock price increase year over year for any of the Mag 7. I prefer the memory providers to the customer facing side for potential big returns. But they’ll all do reasonably well. This is just a generational type market shift where a new market is developing, and market share in that new environment simply costs what it costs.
The housing bubble data wasn't secret either. The market just had a different (exuberant) view. Until they didn't. My old adage i learned then still holds i think: a crisis takes longer to unfold then you'd think possible....and then it happens all at once. Held true with Covid too.
I wouldn’t describe my view as exuberant. I think its just the next level of what is required for these mega-cap companies to keep bringing in big returns, so they are simply doing what is necessary. The scale of work required to set up all these new superhighways opens up a lot of investment opportunity further down the supply chain, but in general they are just following the natural orders of what industry leaders do when new markets emerge.
