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Exploring the frontiers of Technology and AI
Ejaaz:
The most contrarian AI bet of 2026 is the same company that you buy toilet paper from.
Ejaaz:
Many people will mistake Amazon as just an e-commerce company,
Ejaaz:
but they're secretly a frontier AI lab.
Ejaaz:
For example, did you know that they manufacture their own AI chips that are
Ejaaz:
as good as NVIDIA's GPUs, but 50% cheaper, which means that companies like Anthropic
Ejaaz:
and OpenAI, which have signed deals with Amazon, save tens of billions of dollars
Ejaaz:
training their frontier models. But that's not all.
Ejaaz:
Amazon's compute platform, which accounts for 50% of their operating profits, AWS.
Ejaaz:
They're running the same playbook for AI now, serving AI cloud to any company
Ejaaz:
that wants to inference or train their own models.
Ejaaz:
And finally, Amazon has a secret up their sleeve which no one's talking about.
Ejaaz:
Robots. For over a decade, Amazon robots have helped them scale manufacturing
Ejaaz:
and factory automation to the tune of tens of billions of dollars,
Ejaaz:
which make them the perfect company to design and build the robots of tomorrow.
Ejaaz:
Amazon is easily a $5 trillion company hidden as a shopping platform.
Josh:
It's funny you mentioned the shopping platform part because when everyone,
Josh:
myself included, thinks of Amazon, they very clearly think of shopping platform.
Josh:
And for the right reason, I have some pretty unbelievable stats.
Josh:
So last year, Amazon shipped 6.3 billion packages, which is 17 and a quarter
Josh:
million per day, which is 200 per second that gets shipped.
Josh:
So that equates to about 30% of all the US parcels were one company.
Josh:
And that means one out of every three and a half packages was shipped by amazon
Josh:
so in terms of the amount of
Josh:
mass and atoms that they're moving throughout the universe throughout the world
Josh:
like as it relates to the other mag 7 companies they're moving the most amount
Josh:
of stuff just raw stuff and you have to imagine that once you start to apply
Josh:
ai to this in terms of efficiency gains and improvements like you're mentioning with robotics,
Josh:
The amount of stuff can really be optimized quite a bit and have a meaningful impact on the business.
Josh:
But what we're seeing with the stock price that's on the screen here tells a
Josh:
very different story, which is basically flat in a year where every company
Josh:
in the world that was building an AI at Amazon's size went up an outrageous amount.
Ejaaz:
I think the story behind this is Amazon's just very misunderstood.
Ejaaz:
Like, to your point, in the last year, it's gone up 1.4%, which is just insane.
Ejaaz:
It doesn't even beat inflation. doesn't beat inflation, which is just insane.
Ejaaz:
And listen, there are theories as to why this might be, but we're here to tell
Ejaaz:
you the story why Amazon is basically the biggest AI beach ball underwater that
Ejaaz:
is about to pop up in 2026.
Ejaaz:
And some of my foundational thesis behind this, Josh, is that the stuff that
Ejaaz:
they focus on is really unsexy.
Ejaaz:
It's operational. And they're about to do the same for AI.
Ejaaz:
Like, think about it, like sorting, fulfilling packages, delivering it to people
Ejaaz:
isn't really a sexy thing.
Ejaaz:
And then if you talk about compute and serving compute to different companies,
Ejaaz:
again, I don't really care about it. But
Ejaaz:
What most people don't realize is that the top software companies in the world run on AWS.
Ejaaz:
That's why when AWS servers went out a few weeks ago, the world couldn't function.
Ejaaz:
I couldn't use X. I couldn't scroll my favorite social media platforms,
Ejaaz:
Josh, because it ran on AWS.
Ejaaz:
So most people don't realize this. And they're about to do the same for AI.
Josh:
Yeah. And one last thing I want to mention on this chart, since we have it on
Josh:
the screen, is that little PE ratio number, the price to earnings ratio,
Josh:
it's down to 35 now. And for reference, back in 2018, Amazon was trading at
Josh:
over a 200 times price to earnings ratio.
Josh:
So the multiples have really compressed a lot. But this is a much more mature
Josh:
company, which actually has a vector of growth, which is adding AI to the mix
Josh:
to increase this efficiency.
Josh:
So EJS, you wrote all about this. It's in the newsletter that we published.
Josh:
But you actually created a proper article going through the bull case for Amazon.
Josh:
And I think we're going to spend a good amount of time kind of going through
Josh:
the outline that you framed here for why you believe it to be,
Josh:
I mean, as the title says, the most asymmetric bet of 2026.
Ejaaz:
And for those of you who are wondering, hey, what is this article?
Ejaaz:
What is this newsletter? It's the Limitless Newsletter.
Ejaaz:
And if you were subscribed to it, you would have seen this article about a week and a half ago.
Ejaaz:
So again, if you want the best alpha in AI, you have to subscribe to our newsletter.
Ejaaz:
But yes, Josh, one of the first things or one of my first arguments as to why
Ejaaz:
Amazon and there's an asymmetric bet here, is this thing called AI chips.
Ejaaz:
You heard of them, Josh? You know, these little GPUs thing?
Josh:
You come across them? I might have heard of GPU, a little TPU, a whole bunch of U's.
Ejaaz:
All right, all right, okay. So you've heard of NVIDIA, it sounds like.
Ejaaz:
It sounds like you've heard of Google as well, as you know we're very bullish on Google here.
Ejaaz:
But what most people don't realize is Amazon created their own chips.
Ejaaz:
And it wasn't like they did this yesterday.
Ejaaz:
They did this 10 years ago, Josh, when they acquired a company called Annapurna Labs in 2015,
Ejaaz:
which marks the start of their training and build of AI chips to help them with
Ejaaz:
machine learning inference, stuff like they was figuring out way back when,
Ejaaz:
when it came to recommend systems on their shopping platform.
Ejaaz:
Now, if you fast forward today, in the last few weeks, Josh,
Ejaaz:
they released this chip called Tranium 3. It's part of their Tranium series
Ejaaz:
of chips, which are used to build and scale large LLMs or rather large AI models.
Ejaaz:
And Tranium 3, obviously, you know, the first question that pops into your head
Ejaaz:
is like, well, how does this compare to NVIDIA?
Ejaaz:
Well, let me give you a few stats to kind of whet your appetite,
Ejaaz:
Josh, which is it is four and a half times more powerful than Tranium 2,
Ejaaz:
but it's also four times cheaper than Tranium 2.
Ejaaz:
So if you net both of those together, you get like a 10X kind of chip here, right?
Ejaaz:
But then it can also store five times more data than the previous chip that they had.
Ejaaz:
So all of these combined together gives you about 80 to 90% of the same performance
Ejaaz:
as NVIDIA's latest GPU, Blackwell.
Ejaaz:
So I'm not just talking about NVIDIA's second, third, or fourth generation.
Ejaaz:
I'm talking about the latest generation that they have right now. So automatically,
Ejaaz:
Josh, if I was a Frontier AI lab that is spending hundreds of billions of dollars
Ejaaz:
each year on NVIDIA's GPUs and you suddenly give me an option to spend 50% of that bill. So I save...
Ejaaz:
50 billion dollars why wouldn't i use this chip
Josh:
Yeah it sounds like a pretty good deal and i think we should
Josh:
probably start by outlining what exactly this chip is because there's a difference between
Josh:
nvidia's gpu google's tpu and then training which is something totally different
Josh:
and they fit if i'm not mistaken into two kind of basic categories so gpus which
Josh:
is nvidia's blackwell system that is a graphical processing unit it's kind of
Josh:
a general purpose supercomputer you can use it for a lot of different things,
Josh:
graphic being one of them,
Josh:
but also the matrix math required to do AI training as another.
Josh:
With TPUs like Google's making and these Amazon chips through Tranium,
Josh:
they're more focused on specific types of math.
Josh:
They are not general purpose. They're narrowly focused on AI training and AI
Josh:
inference. And that's where you get a lot of the efficiency improvements.
Josh:
So like we're seeing on the screen, 4.4 times higher improvement,
Josh:
four times more memory bandwidth, like the specs are insane,
Josh:
but they cannot be used for everything.
Josh:
So it's a very specific type of customer that wants these types of chips.
Ejaaz:
Exactly. So if you were to kind of like compare the two NVIDIA GPUs and Amazon's training chips,
Ejaaz:
NVIDIA's GPUs can be used for a lot of broad use cases when it comes to training models.
Ejaaz:
Like there are several different types of ways to train an AI model.
Ejaaz:
If you weren't sure which one to use, you would probably use an NVIDIA GPU because
Ejaaz:
it would just be consistent across all of those things.
Ejaaz:
But for Amazon's training chips, you need to specifically know exactly how you're
Ejaaz:
going to train a specific model and then it ends up being cheaper.
Ejaaz:
So it's for like a highly specialized type of AI lab that wants to train their own model.
Ejaaz:
And what's interesting about this, Josh, is it's not just kind of the specific
Ejaaz:
architecture of how this chip is designed, it's also very much the cost.
Ejaaz:
I have a table pulled up here, and if you can take a direct look at it,
Ejaaz:
which compares Tranium 3 to Google's TPUs and NVIDIA's latest chip,
Ejaaz:
the Blackwell, and it is half the cost of NVIDIA's Blackwell.
Ejaaz:
That is excluding NVIDIA's margin that they add on top of this, Josh.
Ejaaz:
So if you look at this, the average cost of an NVIDIA chip to manufacture is
Ejaaz:
around $6,500 to $7,000, but they end up selling it for $40,000.
Ejaaz:
That's the price that Amazon has to pay to buy these chips. That's the cost
Ejaaz:
that OpenAI has to pay to buy these chips.
Ejaaz:
So I can think of two things here. If Amazon has an almost as good chip,
Ejaaz:
then it's going to largely kind of be a more attractive chip to buy for Frontier
Ejaaz:
AI Labs, but it's also going to cut into NVIDIA's margins drastically.
Ejaaz:
So you start seeing Amazon and Google TPUs being able to eat into the market
Ejaaz:
monopoly that NVIDIA has.
Josh:
Okay, so interesting. I want you to kind of help me understand this,
Josh:
because a lot of this has been new information to me. I got intro to this through the article, and,
Josh:
What I understand is that Amazon's chips, not TPUs, are better on a per watt
Josh:
basis. They're more efficient. They're more cost effective.
Josh:
But I guess my question is, if Amazon were to start making these available to
Josh:
the public tomorrow, would they outsell Blackwell?
Josh:
Would people be more interested in these or would it just be a very specific audience?
Ejaaz:
No. OK, so there's two things I want to bring up with you that kind of like
Ejaaz:
sway people's decisions when they're choosing between the chips.
Ejaaz:
Number one, an NVIDIA Blackwell chip on its own and also an Amazon training
Ejaaz:
chip on its own isn't useful, Josh.
Ejaaz:
You need to stack them into this thing called clusters.
Ejaaz:
Now, for an NVIDIA chip, you only have to put 72 of these chips together to
Ejaaz:
get the same performance per watt.
Ejaaz:
But with an Amazon chip, you need to stack 144 of them together.
Ejaaz:
So it's a higher volume thing.
Josh:
Okay, so it's about double the amount of chips per little cluster that we have
Josh:
in a rack. and do those ships are they more expensive too or are they like cost
Josh:
better because it seems like that's a lot more complexity for like 80% of the efficiency.
Ejaaz:
They're cheaper. So on this table right now, they're half the cost.
Ejaaz:
That's where the $3,000, the $3,500 come from.
Ejaaz:
So you may have more chips, which may take up more volume in your data center,
Ejaaz:
but they are cheaper to run at a cost kind of inference, right?
Ejaaz:
The other thing, Josh, is you might have noticed I said they're not as good
Ejaaz:
as NVIDIA GPUs. They're around 80% to 90% as good.
Ejaaz:
And the reason why there's that difference is because of NVIDIA's software moat.
Ejaaz:
So this is something called CUDA or Compute Unified Device Architecture.
Ejaaz:
So basically, if you have the chips, that doesn't solve your entire problem.
Ejaaz:
You need software to be able to make these chips run really coherently together in their clusters.
Ejaaz:
NVIDIA has the stronghold of this, Josh. Any AI lab that is using NVIDIA GPUs,
Ejaaz:
which is the majority of AI labs, run the CUDA software system.
Ejaaz:
And typically, this has locked customers into using NVIDIA.
Ejaaz:
So let's say they're interested in using Google's TPUs, they may not necessarily
Ejaaz:
still want to jump to use Google's TPUs because the software isn't the same.
Ejaaz:
They would have to rewrite their entire code base.
Ejaaz:
Amazon saw that and thought, hmm, I bet I could make this easier.
Ejaaz:
And so they released this thing called a Neuron SDK, which now allows you to
Ejaaz:
copy and paste your code base from your NVIDIA instance into your Amazon GPU
Ejaaz:
or your Amazon Tranium chip in a few clicks.
Josh:
Maybe this is a good time to point out the fact that
Josh:
this is a really big deal for amazon even if they don't sell
Josh:
these chips anywhere um because aws is such a huge story we were looking up
Josh:
before this episode was recorded how much of the internet is run by aws and
Josh:
it's about a third and another fascinating thing that you kind of pointed out
Josh:
in the intro but um as of last quarter i believe um aws
Josh:
revenue was something like less than 20% of the total company,
Josh:
but it accounts for close to 70% of the actual profit share.
Josh:
I think it's like 66% as of the third quarter.
Josh:
So this small part of Amazon's business accounts for over half of the total
Josh:
profit every single quarter that comes in.
Josh:
And with these plans to scale by using these new shifts, by using this gigantic
Josh:
data center that we're seeing on the screen that we're going to get into,
Josh:
there is a very clear trajectory for amplifying the one part of the business
Josh:
that actually matters the most for their top line.
Josh:
And we were talking earlier, it's kind of similar to what Costco does with their
Josh:
membership, where Costco's business operates on very thin profit margins.
Josh:
They really don't make a lot, if any money, on the actual goods sold.
Josh:
A lot of that revenue comes from that membership, from the lock-in.
Josh:
And Amazon, what they have with AWS, is this unbelievably profitable engine
Josh:
that is becoming much more efficient using these new Tranium chips.
Josh:
But here on screen, and we have this really crazy looking data center.
Josh:
So maybe you could tell us more about what's going on here.
Ejaaz:
Yeah, I mean, listen, we're not strangers to crazy data center setups.
Ejaaz:
We've spoken about Elon Musk's Colossus 2. We've spoken about Meta's super data
Ejaaz:
center that they're building.
Ejaaz:
Basically, all the top companies are spending tens of billions of dollars.
Ejaaz:
And Amazon is no stranger to this either. They've invested $11 billion and they're
Ejaaz:
going to invest another $20 billion next year to build out their Indiana data
Ejaaz:
center campus to create around 2.2 gigawatts of compute.
Ejaaz:
That's equitable to about 1 million homes worth of energy by the end of next
Ejaaz:
year, which is just an insane goal to kind of like figure out.
Ejaaz:
And to your point, Josh, like if they're able to pull off what they did with
Ejaaz:
AWS for AI compute specifically,
Ejaaz:
There is kind of like no reason for me to think at least why they wouldn't eat
Ejaaz:
into all the other NeoCloud's valuations. We've spoken about, what's his name?
Ejaaz:
Leopold investing in this company called CoreWeave, which was one of the top NeoCloud providers.
Ejaaz:
And he invested to the tune of like, I think it was like 350 billion,
Ejaaz:
almost $400 billion into this company.
Ejaaz:
If Amazon just eats, like switches this on at the end of next year,
Ejaaz:
they like companies who are already running on AWS will just switch to the AI
Ejaaz:
version of AWS. it kind of doesn't make sense for them to kind of flip here.
Ejaaz:
And it's why I think they have such a kind of sticky mode. They help with all the unsexy stuff, Josh.
Ejaaz:
I don't know if you saw this rollout of something called AI Factory.
Ejaaz:
Did you catch this by any chance?
Josh:
No. AI Factory sounds interesting. We like factories. Okay.
Ejaaz:
So let me lay this out for you. A lot of enterprises and even governments want
Ejaaz:
to create their own versions of AI models, but they run into two main issues.
Ejaaz:
Number one, they don't know who to buy the chips from. Should they go to NVIDIA?
Ejaaz:
Should they go to Google? Should they go to Amazon? I have no idea.
Ejaaz:
And then two, they don't want to set it up themselves, right?
Ejaaz:
But they also don't want to rent compute directly through AWS. Why?
Ejaaz:
Because, you know, they have some private information. They don't want to leak information.
Ejaaz:
They want Amazon to own the information. They want to hold it on their own private
Ejaaz:
service. So Amazon looked at this and said,
Ejaaz:
Okay, we're rolling out a service called AWS Factory, and here's what we offer.
Ejaaz:
If you want NVIDIA GPUs, we got you. If you want Amazon Tranium GPUs or chips,
Ejaaz:
which are, by the way, 50% cheaper, we also got you.
Ejaaz:
If you want a hybrid or mix of both of these things, we've got you.
Ejaaz:
And what they do is they build the server racks, Josh, for them.
Ejaaz:
They basically build out a data center for them, and this benefits them in so
Ejaaz:
many ways because they have the software and they have the hardware,
Ejaaz:
and they have 50% less the cost if they run AWS or Amazon Tranium chips.
Ejaaz:
So it's like an all-in-one package where they have lower latency,
Ejaaz:
they save on costs, and they have premium frontier intelligence. Pretty cool.
Josh:
But there's an important distinction
Josh:
there where they're not building the factories for the company.
Josh:
They're building their own infrastructure that they're lending to the company, right?
Josh:
So if we're considering a company like Oracle, whose job is to build data centers
Josh:
for companies, you can think about the Project Stargate project with OpenAI,
Josh:
they are building actual infrastructure that OpenAI will own.
Josh:
What Amazon is doing is they are building the infrastructure for you,
Josh:
but they're just leasing it to you. They still own the underlying core infra.
Josh:
So these other companies are essentially bankrolling the build-out of these
Josh:
factories, but doing so in a way that doesn't incur a lot of debt.
Josh:
Like they already have customers here.
Josh:
And the switching costs, I was looking because I was curious as it relates to
Josh:
these big cloud providers. Like AWS is 30%.
Josh:
Azure and Google Cloud are another 33%. And then the rest is just kind of this
Josh:
mix of things. So a third of the companies are already, they trust the security
Josh:
of Amazon. They already use Amazon.
Josh:
They have their whole custom software stack built on Amazon.
Josh:
And in the world that they can just extend this to integrate AI into their offering,
Josh:
well, now 33% of the internet, they just get to direct AI offering built in.
Josh:
And that's like a pretty powerful thing.
Ejaaz:
Yeah, Josh, you know which other little small company this reminds me of?
Josh:
Google. Who's that?
Ejaaz:
Google already had their roots sewn into so many different products.
Ejaaz:
Basically, anyone who's ever graced the internet has come across a Google product,
Ejaaz:
whether it's Gmail, Android, Play Store, whether it's Google Search itself.
Ejaaz:
Amazon is the same bedrock for this, except it's just, hey, we've got the compute
Ejaaz:
that you're going to run your number one website or internet product on.
Ejaaz:
And they're converting the same users, as you said, into AI users.
Ejaaz:
I just think it's a complete no-brainer.
Ejaaz:
And yeah, to kind of build on your analogy, they're not building the entire data center for you.
Ejaaz:
You're going to still have to buy the warehouse and supply it with energy and
Ejaaz:
electrical grid, but they've got everything else for you.
Ejaaz:
You don't have to have the upfront AI capex costs that, for example,
Ejaaz:
OpenAI has when they're committing $1.4 trillion over the next five years to buy these GPUs.
Josh:
Okay, so we've covered the chips, we've covered the cloud, Now we have the physical
Josh:
infrastructure, the world of atoms. This gets to our 6.3 billion package statistic
Josh:
where Amazon, of all the Mag7 companies, they just move the most amount of stuff through the universe.
Josh:
And through that, they benefit, they stand to benefit a lot from automation,
Josh:
particularly as it relates to robots.
Josh:
So here we have news that they have three quarters of a million robots already deployed.
Josh:
EJS, what are their plans going forward that are part of your bull case as it
Josh:
relates to kind of robotics and warehouses?
Ejaaz:
Okay, what I'm about to say is going to sound controversial.
Ejaaz:
Because I have said that Tesla is the number one robot company so many times, but I was wrong.
Ejaaz:
It's going to be- Oh, wow, that is a hot take. It's going to be Amazon.
Ejaaz:
They already have almost a million of these things out there. And listen, listen.
Ejaaz:
Okay. They might not be the humanoid robots that grace your home,
Ejaaz:
that help you with the laundry.
Ejaaz:
I have laundry in my thing that needs to get sorted right now.
Ejaaz:
Wish I had one of those, right?
Ejaaz:
It's not going to be a robot car that takes me wherever I need to from A to
Ejaaz:
B with minimal accidental type stuff.
Ejaaz:
But they're going to be the robots that scale very important things,
Ejaaz:
such as manual labor, Josh, which is like, you know, a multi-trillion dollar
Ejaaz:
industry or global sector as itself.
Ejaaz:
If you are able to cut down costs by 50 to maybe even additional percent,
Ejaaz:
why wouldn't you do that?
Ejaaz:
Amazon is the perfectly positioned company for that. They already have a million of these robots.
Ejaaz:
They are making very, very aggressive cuts on their labor force.
Ejaaz:
I don't know if you saw, but like they cut 30,000 jobs about two months ago,
Ejaaz:
and they're aiming to scale that up to 600,000 warehouse workers by 2023,
Ejaaz:
which is honestly quite scary to hear for a lot of people, I'm sure, who are in these jobs.
Ejaaz:
But I think those job roles will essentially evolve. But it basically makes
Ejaaz:
Amazon the perfect company to design and build these automation robots of the future.
Ejaaz:
Again, they're doing the unsexy stuff, the behind-the-scenes work.
Ejaaz:
They're not consumer-facing robots, but it's still a multi-billion-dollar industry.
Josh:
We're going to have to agree to disagree on that Tesla robotic statement, I think.
Josh:
But I think there is an important difference to outline in the two different
Josh:
approaches the companies are taking.
Josh:
So Tesla very much treats the factory as the robot, and the robots that they're
Josh:
going for are more humanoid general purpose or as it relates to transportation.
Josh:
What Amazon is doing and what we're seeing here is...
Josh:
Sure, there's some robots that look like humanoids, but a lot of the robots
Josh:
that are going to be in these factories, they're narrow-purpose robots.
Josh:
They're good for one task. It's a single arm that moves a specific way very quickly.
Josh:
And I think that's, when we talk about robots, it's important to understand
Josh:
that there are narrow-band robots and general-purpose robots like humanoids.
Josh:
And what Amazon most likely stands to benefit from the most,
Josh:
at least in the shorter term, is these narrow-band robots like these arms that
Josh:
you're seeing on the screen that are really, really efficient at doing one specific
Josh:
task. or whether it be those things that are rolling on the floor that can move all these boxes around.
Josh:
So as it relates to that type of robotics, Amazon is, they probably have the
Josh:
strongest case to be made on how much they can profit from putting those into
Josh:
their product because the factory very much is their product.
Josh:
How many packages they can ship per minute, if they can get that up from over, what was the number?
Josh:
Some crazy number, but whatever 200 per second packages, if they can get that
Josh:
up to 250, I mean, that's a huge increase in improvement.
Josh:
So I think as it relates to factories, this automation is gonna be huge for them.
Ejaaz:
I have a question for you Josh. I noticed you said that it'll help them profit for their own products.
Ejaaz:
Do you ever see Amazon selling this type of robot to other factory manufacturers
Ejaaz:
in completely different sectors?
Josh:
I would hope not. But what I imagine Amazon does is uses this to create more
Josh:
of a platform for to entice sellers.
Josh:
So a similar business, which I'm kind of thinking, like people use Shopify a
Josh:
lot to create web stores and to sell things.
Josh:
Shopify is good at creating the tooling. It's good at creating the actual website.
Josh:
It's good at pairing customers to consumers, taking care of all the infrastructure.
Josh:
But Amazon is the layer that sits beneath that and can actually handle the logistics for you.
Josh:
So if you're shipping physical goods, I suspect that Amazon won't sell these
Josh:
robots to other companies.
Josh:
They will just, again, like they're doing with the data centers,
Josh:
they will build the infra and then offer the services to anybody who wants,
Josh:
because that's where they get the most amount of profit.
Josh:
So if you're a seller on Amazon who wants to know, well, what are the sales
Josh:
going to be like in November and December during the holiday season?
Josh:
Can you project that for me?
Josh:
How much do I need to make? Okay, how much should I send to your warehouse so
Josh:
that you're able to get out all the orders on time?
Josh:
And as they get more of this intelligence, as they start to build more of an understanding.
Josh:
And this gets to the consumer side too, where they understand their customer.
Josh:
They know what the customer is shopping for. They know how to sell them ads.
Josh:
You get this really fully vertically integrated experience as a seller on Amazon
Josh:
that you just can't get anywhere else.
Josh:
So if they're building these robots for their own warehouses,
Josh:
they should keep them and make everyone else use them because that total vertical
Josh:
integration where they understand the customer, they have all the automation,
Josh:
it creates the best experience for everybody.
Ejaaz:
I see it. I just don't,
Ejaaz:
know if I can fully believe it just yet, because like in the same way that they
Ejaaz:
rent compute or like kind of CapEx, you know, data hardware to different people,
Ejaaz:
I feel like they would probably do the same for their robots as well.
Ejaaz:
But I saw Newsleek a few months or like last month, Josh, I don't know if you
Ejaaz:
saw this, that they're planning to take on the U.S. Postal Service.
Ejaaz:
For those of you who don't know, Amazon pays the U.S.
Ejaaz:
Postal Service or rather facilitates $6.6 billion of revenue by using the U.S. Postal Service.
Ejaaz:
Amazon just didn't want to scale the delivery kind of service to the extent
Ejaaz:
of the U.S. Postal Service.
Ejaaz:
Now they're in the market of actually doing that. So we might end up with a
Ejaaz:
company that is just all consuming and using all the goods for themselves.
Ejaaz:
I don't think they'll do it for chips, but maybe they'll end up doing it for robots.
Ejaaz:
And Josh, I guess the final point that I want to make and that we had in this
Ejaaz:
essay is Amazon is just really good at understanding what they're good at and
Ejaaz:
not treading outside of that line. So what do I mean by that?
Ejaaz:
Well, many people think that, okay, if you're a frontier AI company,
Ejaaz:
you should have a bleeding edge model.
Ejaaz:
The funny part about this is Amazon has arguably the weakest AI model that's
Ejaaz:
out there, but it's good for their in-house use.
Ejaaz:
So they have a series of models, Josh, and it's called Nova.
Ejaaz:
But have you ever used Nova, Josh? Have you ever kind of heard of it?
Josh:
No, I have not used. I actually haven't engaged with any Amazon AI yet. This is a new frontier.
Ejaaz:
Okay. Well, the reason for that might be because it is a speech-to-speech model,
Ejaaz:
meaning that you speak to it and it speaks back to you.
Ejaaz:
So you might be like, well, when the hell would I ever do that?
Ejaaz:
It's primarily in customer support. That's where they've used their AI model.
Ejaaz:
So they trained a very small but hyper-efficient AI model to kind of facilitate
Ejaaz:
and backlog all of that kind of stuff. So they've been able to reduce their
Ejaaz:
kind of reliance on human customer support for that and save costs in that end.
Ejaaz:
The other side of things is Amazon is really good at focusing on enterprise customers.
Ejaaz:
And so they produced an AI model software service, which basically allows any
Ejaaz:
enterprise to train their own AI model using Amazon's model architecture so
Ejaaz:
you can train it on its own proprietary data. Why would you want to do that as an enterprise?
Ejaaz:
Well, you have private data, you don't want to give it to OpenAI or you don't
Ejaaz:
want to give it to Google, but now you have a private instance where you can
Ejaaz:
just run it on Amazon's model product. And that's really cool.
Ejaaz:
And that brings me to the final point, Josh, which is like kind of Amazon's
Ejaaz:
secret ability here, they've invested in some really big companies.
Ejaaz:
In fact, you might've heard of Anthropic.
Ejaaz:
Actually, I think you told me this on a previous episode.
Josh:
Yeah, a little known fact that most people don't know is that Amazon owns about
Josh:
20%, give or take a few percentage points of Anthropic.
Josh:
And it's funny because when I was considering the bear case,
Josh:
the reason to be skeptical of Amazon, one of the big things was comparing the
Josh:
other major cloud providers. We have Google Cloud Services, which is,
Josh:
I mean, a huge entity that runs on Gemini.
Josh:
It benefits from Gemini. Then we have Microsoft Azure, which is Microsoft's
Josh:
cloud service provider that partners with OpenAI and they receive 100% of the IP from OpenAI.
Josh:
But then I was like, well, you know, Amazon actually does have their own big
Josh:
dog in their corner, which is Anthropic.
Josh:
They have this huge partnership with Anthropic where I'm sure a lot of resources
Josh:
are being shared, but Anthropic is also training using these new chips,
Josh:
which is fascinating because right now, Now, Anthropic has the most unbelievably
Josh:
great coding model in the world.
Josh:
So something is working behind the scenes.
Josh:
And I guess time will tell us to see how it bleeds out into the rest of the
Josh:
industry. But they do have some big guns in their corner.
Ejaaz:
Kind of like going on the theme of the bear case, Josh, I have to like put the
Ejaaz:
realistic framing on this.
Ejaaz:
Amazon's chips are awesome. They're almost as good as NVIDIA. They're 50% cheaper.
Ejaaz:
But there's one major constraint, which actually Google faces as well.
Ejaaz:
There's a little company in Taiwan called TSMC.
Ejaaz:
Some of you might have heard about it. But they require Taiwan Semiconductor
Ejaaz:
Manufacturing Company to be able to build the chips for them.
Ejaaz:
Google relies on them to build their TPUs as well.
Ejaaz:
Can you take a guess at which company owns around 90% of the capacity for TSMC next year.
Josh:
Oh, I'm going to guess there's only one correct answer to this question,
Josh:
and that is NVIDIA, the owner of all chips and GPUs.
Ejaaz:
Yeah, so even if Amazon wanted to, let's say they created a hit product with
Ejaaz:
these chips and everyone wanted to use it, they couldn't even fulfill demand
Ejaaz:
because NVIDIA holds the stronghold.
Ejaaz:
And so they have to wait until the end of 2027 where TSMC would have scaled
Ejaaz:
enough capacity at that point to be able to service that.
Ejaaz:
So they're going to start to look for alternative providers.
Josh:
Yeah, is that a real constraint? Because, okay, so I'm of two minds here where
Josh:
Amazon seems to be undervalued just on a relative basis. Their price to earnings ratio is very low.
Josh:
Wall Street has basically priced them as break even throughout the course of
Josh:
the year, while a lot of the comparable companies have gone up like 80, 90, 100 percent.
Josh:
But then I hear things like this and I'm like, well, is this bull case that
Josh:
we're laying out actually even possible? Because we do have the TSMC kind of
Josh:
monopoly situation with NVIDIA.
Josh:
There are alternatives. I know Samsung is working on building another chip architecture.
Josh:
Is that really the nail in the coffin? Like, is it possible for them to see
Josh:
this upside growth without TSMC? or is it really just relying on TSMC?
Ejaaz:
So a consistent trend for NVIDIA that owns the monopoly of capacity on TSMC
Ejaaz:
is they want to be able to train frontier AI intelligence.
Ejaaz:
Amazon's approach has been very clear. They want to be the cheaper alternative.
Ejaaz:
Once you've scaled and built your frontier intelligence, we're the cheaper chip
Ejaaz:
for you to use to scale your product in general.
Ejaaz:
Inference is where they plan to make most of their money is my suspicion.
Ejaaz:
The other way I would address this is, I do think, it's not going to be immediate,
Ejaaz:
but eventually, over the next couple of years, companies like Samsung and other
Ejaaz:
competitors are eventually going to provide an alternative to TSMC.
Ejaaz:
Now, critics will be jumping down my throat on that one because they're going
Ejaaz:
to say, well, for the last decade, nothing has changed.
Ejaaz:
And I will just respond to you that AI wasn't really a big thing over the last
Ejaaz:
decade. It's only over the last couple of years.
Ejaaz:
And if big companies like Google, like Amazon are completely constrained because
Ejaaz:
of this one company and NVIDIA maintains the market monopoly there,
Ejaaz:
it's going to force companies like Samsung to create an alternative.
Ejaaz:
We're already seeing this. We had an episode this week or rather last week on
Ejaaz:
China copying the key components of a company called ASML to try and fill this gap.
Ejaaz:
I just, if I was a betting man, which I am, and I own Amazon stock,
Ejaaz:
you know, just putting it out there, I think a competitor is going to come into the ring.
Josh:
Yeah, it seems like, well, the interesting thing is Samsung actually beat TSMC
Josh:
to the two nanometer chip architecture, which was a really big deal.
Josh:
And now they're going to partner with Apple and the largest companies are going
Josh:
to get their chips from somewhere else.
Josh:
Is it going to be too long? EJS, 2027, we're going to have like AGI on Mars
Josh:
by then. So can they survive?
Josh:
Like, is that not too long? I don't know. So I guess maybe we could wrap this
Josh:
up by kind of where you currently stand.
Josh:
How long do you think these things will take to play out?
Josh:
How much upside do you think is really possible in the near term?
Josh:
How poorly has the market mispriced?
Josh:
Is this just like a bubble underwater that is waiting to pop out?
Josh:
How does that all look kind of going forward into 2026 based on your understanding of it all?
Ejaaz:
Okay, so in short, I think it's bullish because even though they are reliant
Ejaaz:
on TSMC's capacity, they are still going to produce in the order of five to
Ejaaz:
six million Amazon chips next year. In fact, Google's going to do the same as well.
Ejaaz:
And one simple problem remains, Josh.
Ejaaz:
There's not enough GPUs, TPUs, or Tranium chips to satisfy demand right now.
Ejaaz:
So even with NVIDIA's capacity, they're sold out.
Ejaaz:
So companies are looking for other types of chips to fulfill demand.
Ejaaz:
That's why OpenAI last week signed a $10 billion deal with Amazon.
Ejaaz:
That's why Anthropic signed a 1 million chip deal with Amazon. It's the same thing.
Ejaaz:
If Amazon creates all the chips, they're going to end up selling it.
Ejaaz:
Now, over the long term, are they going to win? Yes or no? it remains to be seen.
Ejaaz:
You know, everyone thinks TSMC has a stronghold. I think there's eventually
Ejaaz:
going to be a competitor, which makes Amazon and Google way more competitive to NVIDIA's mode.
Josh:
If you build it, they will come. And Amazon is building it. And they're building
Josh:
a lot of it. And they have won the least out of everybody.
Josh:
So just based on that math alone, there's got to be some hidden upside there. Like they're trading.
Josh:
There's such a cash generating business. Everybody who's watching this video
Josh:
has interacted with Amazon once in their life.
Josh:
It's just it's a great company that will probably stand to benefit from ai when
Josh:
and at what scale we don't know but that is part of the fun we will follow it
Josh:
along as we go is just are there any parting thoughts before we we wrap up here.
Ejaaz:
Actually yes i have one final bit of law we started off the episode critiquing
Ejaaz:
amazon stock pricing it's flat one of the main reasons that critics give is
Ejaaz:
because they don't really believe in the ceo andy jassy i don't think i agree
Ejaaz:
with that he's led the company to kind of like create quarterly earnings upon upon upon a time.
Ejaaz:
They're doing really well. They've grown a lot. But there's a small percentage chance, Josh.
Ejaaz:
That Jeff Bezos reclaims the throne, similar to how Sergey Brin did so with Google. Why not?
Ejaaz:
He's outspokenly said that AI is the most important technological shift over the next decade.
Ejaaz:
He started a company that's focused on creating AI lab stuff for robotics and stuff.
Ejaaz:
It feels kind of weird for him to just leave his baby behind.
Ejaaz:
He knows he already has the vessel there. Why wouldn't he come back?
Josh:
Okay, well, it's certainly the same thing as Google. Google had their founders
Josh:
disappear. Sergey Brin came back and the stock is up 80% in the 12 months that followed that.
Josh:
So there is something, there is a precedent for this happening.
Josh:
I mean, we have, Bezos is off, he's building rockets with Blue Origin, he's doing robotics.
Josh:
He seems very busy. If he comes back to Amazon, I'm sure that would be bullish to some extent.
Josh:
What the extent is, we don't know, but we will be here to cover it as always
Josh:
as we go along this journey.
Josh:
That will wrap up our episode today on the Amazon Bullcase. If you enjoyed this
Josh:
episode, please do not forget to share it with a friend.
Josh:
Or if you haven't go rate it five stars on your
Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
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Josh:
where we curate our ideas before presenting them in long form so would highly
Josh:
recommend that concludes our first episode this week we still have two more
Josh:
to go so stay tuned for that there's a lot of interesting stuff happening and
Josh:
thank you so much for watching as always and we will see you guys on the next one see ya.