Weekend Listen: A Stock Market of Amazonian Proportions

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1:52Stacey, this is kind of a personal question, but what is your relationship with Amazon Prime? My relationship? Yeah, your relationship. It's complicated. I say it's funny. I am on the outs with Amazon Prime, mostly because my wife canceled it. And I am trying to make do with Walmart Plus or whatever it's called. Very similar service. And these services are everywhere. where they have become a defining part of pretty much many people's lives, at least in the developed world. And we sent our producer, Miles J. Herzenhorn, out into New York, where there are a lot of Amazon Prime shoppers, just to understand what their Prime habits were.

2:34This service has been around for something like 20 years. How do they see it? Do you have Amazon Prime? Yes. How often would you say you use Amazon? maybe like once every few weeks? Yes, quite often, yeah. It's a couple of years. And what is the last thing you purchased off of Amazon? Literally, we buy so many things every day. I mean, every single day. I think just household essentials, like soap. Small things like I had a cable that I had to buy. I think a phone case. Yeah, I'm pretty sure a phone case, yeah. Maybe a dish rack? Probably a pair of sneakers. I bought my watch off Amazon, I think.

3:16That's the last thing I bought, yeah. What's your relationship to Amazon? I would say it's a convenience, not dependent on it. Pretty good, yeah. They get my packages on time, pretty fast shipping. And they have everything I need on there. I mean, I like the convenience of the company itself, and I've had Prime for a while, and I use the video, but I'm troubled about the management, to be honest. They provide a good service, but they're also a massive corporation, so there's trade-offs. I'm unsure because since COVID, people have been using it way too much, I think, and it's making local business fail, I think.

3:58It saves time. Time is the scarcest resource. You can buy it with more money, and it saves time. So we use it more and more as we move forward. So a lot of usage of Amazon, Stacey, but mixed feelings. Well, yeah, yeah. I mean, but most people seem to be using it for all kinds of things. What they're not talking about, but they are using it for, is AI and cloud computing. It's a huge part of Amazon's business. And Brad Stone, who'll be joining us later, wrote a whole story for Bloomberg Businessweek about this kind of new version of Amazon and where it's going. How do you frame Amazon today? It's so many disparate things.

4:44And we write, it's a corporate turducken. Turduckens are always funny. It's an ad business, a logistics company stuffed inside an e-commerce marketplace, trust to a cloud computing powerhouse, garnished with Alexa, Whole Foods, and Prime Video. So Amazon, of course, one of the big, magnificent seven stocks, has been having a pretty great year, had a great last year. And in spite of all the things that have happened, the markets have been going up. Amazon right along with them. And we have Kyla Scanlon to talk about why the markets keep relentlessly marching skyward, even though the economy has taken some major blows.

5:21It's not a good or bad thing. It's just like the worry that the market's not properly understanding what's happening. and then that puts 401ks at risk, that puts retirees at risk, that puts the stability of the entire American experiment at risk. So that's the concern.

5:42This is Everybody's Business. I'm Max Chatham. And I'm Stacey Vanek-Smith. The behemoth that is Amazon, coming up after the break.

5:58Stacey, I was giving you a hard time earlier about your Amazon Prime habits. Were you giving me a hard time about my Amazon Prime? Yeah, but the truth is you are really in the majority here. I'm not in a niche minority. No. Amazon Prime is very popular. In fact, a third-party survey published in December by the Consumer Intelligence Research Partners sort of trying to estimate the number of Prime subscribers, put it at around 200 million. So lots of us, lots of us enjoy the glory. Well, I think it's become normalized. I feel like there's an expectation that's developed of things getting shipped, of not paying for shipping, and then things arriving in two days.

6:35And when I do order things off of other websites, even though on one level I feel better about myself sometimes, on another level, it is hard to pay a$10 or$20 shipping fee. And hard once we spend so much time with a company like Amazon to quit it. And we have someone right here, right now, in the studio. It's true. Who has been thinking about this and other big questions. Business Week editor Brad Stone. He's also the author of two books on Amazon, The Everything Store and Amazon Unbound. What even is Amazon at this point? I mean, I think most people think of it as a store. An everything store, if you will.

7:14Max, there's one line from the story I wrote with Matt Day. that I'm particularly proud of because we thought about this. How do you frame Amazon today? It's so many disparate things. And we write, it's a corporate turducken. Turduckens are always funny. It's an ad business, a logistics company stuffed inside an e-commerce marketplace, trust to a cloud computing powerhouse, garnished with Alexa, Whole Foods, and Prime Video. So in a way, it's not as easily described as an everything store. You talk about in your article that they're making this big move into AI, that they've made just this huge bet.

7:47and that their goal with AI is not just AI. I feel like a lot of companies are, everybody's even shoe companies are getting into AI. But you make the point that they want to be the Amazon of AI. What does that mean? Well, first of all, Amazon has a lot to lose, right? AWS is the market leader in cloud computing. It's got something like, what, 35 or 40 % market share. Just explain what that is. I think people sort of know what cloud computing is, but when you say AWS, Amazon Web Services, what are you talking about? This is companies, organizations, governments renting their computing capacity, running their applications on the servers of what we call in the industry like the big hyperscalers.

8:27That's Amazon primarily with the majority of market share, but also Google and Microsoft. In this new wave of AI where the potential is to kind of supercharge your operations with AI, Microsoft and Google have started to make up a lot of ground. They have booked a lot more future business. They each early on invested in the leading AI companies, Microsoft in OpenAI, Google very early on in Anthropic. And there was the perception internally and externally that Amazon was caught flat-footed. And here on the fifth anniversary of Andy Jassy's tenure as CEO taking over from Jeff Bezos, we are looking at his playbook and how he's been trying to catch up.

9:09And he has largely caught up. In a lot of ways, Amazon was behind on AI. Like this trend caught them by surprise in a sense because they do not have one of the leading large language models. On the other hand, they were very early in a bunch of things that are kind of AI adjacent. Data centers being one of them. Alexa, this kind of a proto chat bot being another. And even like the Amazon Go store that has now been shut down. Like they had some sense that this was going to be a thing, but they didn't quite play it right. How have they turned it around? No, I think it's true. I mean, Jeff was pushing machine learning tools inside the company for more than a decade.

9:49I think that there was an opportunity for them to invest earlier than they did in Anthropic, maybe even OpenAI. But they've turned it around by running the Amazon Playbook. So they produce chips to compete with NVIDIA's AI processors. and the selling point for those is that they're a little bit more cost-effective. Come to Amazon, run the model, save a little bit of money or do it more efficiently. The other thing is you go to Amazon's bedrock service, which is how you'd run your AI applications if you're an AWS customer, and I kind of compare it to a sort of a diner's menu of options. People want to run their AI where their data is and where their applications are.

10:27So depending on their customers and their market share and the hassle or the inconvenience of moving off that to basically solidify their position. So is Amazon's AI basically just a business-to-business? Is it like a B2B AI? Or will customers, like Prime members, experience it too? I mean, this is Amazon, right? So it's always everything. So they've done a couple of things. The answer is yes. The answer is always yes. This may be a good time to broaden the conversation to AI in general. This is the kind of cover story of a series of stories that are in the same issue, all about AI and kind of what it's going to take to take AI to the next level.

11:08Stacey has a story in it. I've got a story in it. And I think, Stacey, I thought of your story, which is about AI and productivity and the question of what it means for productivity. And it made me wonder, and I think there is a big question hanging over this whole AI revolution, which is like, when are the productivity gains going to come? And are they going to come? Are we sure they're going to come? I mean, to me, that's a really interesting question about AI is that there's all this promise, all this excitement. Our economy, in a lot of ways, is kind of counting on it. But there is always a gap with new technology between when the technology is introduced and adopted and when it actually causes the economy to grow.

11:47And there's also a gap with jobs, which I think is scaring everybody, where it's a lot of jobs get lost sometimes because of new technology. And then eventually, economists will always say, but new jobs come, but there's a gap there too. But one interesting thing about Amazon is a lot of companies are grappling with this. Like they have to make a huge investment. A is not cheap. So they have to make a big investment and the payoff might not come for a while. But I'm wondering if that matters to Amazon or if Amazon can just weather the storm, whereas a lot of smaller companies might be a little more locked out.

12:20There's almost no way for these large tech companies to lose, right? They are the beneficiaries of so much. So chilling. Yeah, there's so much experimentation that's happening. Such an industry-wide, business-wide commitment to trying out these AI tools. Amazon's also building these data centers. That's$200 billion investment in CapEx this year that momentarily alarmed investors, and then they kind of came back. And they fund most of that with their own balance sheet. So they're not doing the kind of risky lending that maybe some of the smaller competitors are. The big risk for Amazon is that for the original part of its business, for still the largest part of its business, the e-commerce company, that people start shopping within ChatGPT or Claude.

13:04That top of the funnel changes. And these chatbots seem to customers to be like a far superior experience in the currently ad-riddled search results you would get in searching on Amazon. And so in some ways, Rufus maybe, you know, doesn't have to solve all of our problems as shoppers, but it does have to be kind of part of the Amazon moat and a reason if these shopping agents do take off that people are compelled to stick with Amazon. So much of this just feels very slippery to me. I mean, we don't – Like business-wise or politically? Everything. The productivity gains have not come. The question of job losses is very much open.

13:41I mean, you have companies saying they're laying people off with AI because of AI, but it's not totally clear that's the reason. You know, the concept that we've talked about AI washing or whatever. And you also have, including some of these technologists, saying now being aware that it's maybe a bad look to talk about laying people off because of technology are now saying, oh, no, no, no, AI is actually going to create lots of jobs. So, like, there's all this. The messaging is kind of confused. I do think there's risk to Amazon. The story that I wrote in this issue is about Ro Khanna, who's a congressman from Silicon Valley.

14:17I thought of him as basically the most pro-tech member of Congress there was. He was out there talking about how great crypto was when crypto was controversial. Well, like a lot of his campaign money has got to be coming from tech. His constituents are technologists. And he is – and what my story is about is how he's basically turned against the industry. and I think he's doing it because he's trying to run for president and also because many people in the United States are turning against this stuff. These data centers, and I think this is going to be a risk for Amazon. I think Amazon has a risk of going through something similar to what Tesla went through, where maybe in a less pronounced way just because Jeff Bezos and the company is not seen as polarizing as Elon Musk is.

14:59But I don't know. You even hear it in the tape we played. People have ambivalent feelings about this company. I agree with that, but I also think we should note that a billion people are using chat GPT every week. AWS just hit its fastest growth rate in like several years. People are understandably nervous and maybe ambivalent about AI at the same time as another set of numbers show that they're doing everything they can to - They're revealed preferences. Yeah, to experiment with it, to integrate it into their own lives. And I'm sure Andy Jassy is looking at the numbers. He told us that Alexa use has doubled since they rolled out Alexa Plus.

15:34They seem very optimistic about Rufus that, yeah, maybe despite the political sentiment and the nervousness, people are embracing these tools. It'll be interesting watching this play out over the next couple of years. We get an election in 2028 and there's going to be opportunities for customers to make their voices. I mean, it's a huge issue. There are tons of protests like in the West, Utah. There, you know, there's a 40 ,000 acre data center going in and like just protests have erupted. people in places with lots of space and not a lot of political power are really upset. But there may be some victories.

16:11I guess I'm skeptical because of the juggernaut that is AI that it will stop. We will continue covering this. We will continue watching this. Brad will be back to update us on the next turn of the screw in tech and in all the quarters of power. Brad Stone, thanks for being here. Thank you, guys.

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18:31But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at CINFIN.com. Of course, Max, companies like Amazon have been a major part of the economic boom that we have been seeing. A lot of that economic boom being fueled by AI, or at least hopes about AI. And the stock market for the last couple of years has just been on a tear, going gangbusters.

19:18Yeah, and it's kind of strange because we've been talking on this show all along about the kind of difficult news that the economy is confronting. Obviously, there's potential questions about AI. There's also the war in Iran. Oil, the price of oil has doubled. Consumer sentiment, it's not great. Stacey, and the Fed, even the Fed, the interest rates are not getting cut. Yeah, we got some not awesome inflation numbers out this week. and the price of everything has been going up pretty fast and doesn't look to be slowing down anytime soon. And there was a really interesting article that we came across from our friend of the show, Kyla Scanlon, about why this might be and what we should think about it.

19:59Kyla is the bestselling author of In This Economy. She joins us now. Welcome, Kyla. Yeah, thanks for having me. Okay, so very basic question. There are a lot of reasons why it seems like the market should not be on the tear they're on. What is going on? Why are they so exuberant? I mean, it's a good question. Like part of it is earnings. So like a lot of what's happening with the stock market right now is the companies are making a lot of money. Like the AI trade is really working out. But like what you said about energy prices also really matters because that puts a lot of pressure on companies historically.

20:31I mean, sometimes it doesn't. But the companies and the stocks are kind of shrugging everything off, it seems. And there's this implicit assumption that AI will continue to carry the economy forward, that the data center buildout will continue to happen, that the grid can support all of the data centers that are being built, the companies are going to adopt all of the AI, and that will carry the stock market because the AI companies are such a big component of the S &P 500 that, yeah, it just seems like nothing can slow it down. The challenges that you're referring to, like, we should just spell them out.

21:04So I guess the big one is that Trump started a war with Iran and the trade of Hormuz has been closed as we're recording this for six weeks, I guess. Something like that. More than two months. And probably more importantly shows no sign of reopening. And that is causing fuel crises in countries around the world. And on top of that, it creates inflation challenges. There's that that's happening. I mean, what are the other big economic challenges that in your mind should be – the stock market should be responding to besides fuel prices? I mean, I think it's just the uncertainty of it all. Like for businesses right now, like we don't even talk about tariffs anymore.

21:48But like that's still a thing that companies are having to deal with. The higher health insurance costs have led a lot of companies to pull back on hiring spend. So I think it's just kind of like the general environment you would think would put a lot of pressure on companies. You would think that what's happening with the Federal Reserve, sort of the questions around independence, would cause the stock market to sell off a little bit, but it doesn't seem to care at all. You would think that the political path that we're on, where we're sort of objectively kind of fighting with our allies, would upset the stock market a little bit, but it doesn't seem to care.

22:22Like it doesn't seem to worry about the fact that a lot of what our trade relationships are, you know, requiring our friends to continue to exist, to have those friendships continue to be fruitful, not putting tariffs on other countries. So, I mean, it's just it's kind of everything you would expect the stock market to go down. But maybe it's because everything is so crazy that it just goes up. Well, also interest rates, that's normally something the market really responds to. If interest rates aren't cut, you know, that can really slow the economy down. It makes borrowing more expensive, which can mean businesses and people borrow less and spend less.

22:55But even that hasn't dampened the markets. Nothing has. So what do you think is going on? So in this New York Times opinion piece that I wrote, I theorized that the markets expect to get rescued. So like every time something goes bad, you know, the stock market gets rescued by the Federal Reserve. And this is something the Fed has to do. I think it makes a lot of sense. It's very rational. But Greenspan did it. Bernanke did it. Powell did it during the pandemic. Because when you raise interest rates, as you were saying, like people spend less money, you know, money's more expensive. People slow the economy down.

23:34So then ultimately, hopefully inflation goes down as sort of like the mechanism that interest rates move throughout the economy. And so if the stock market or the economy rather needs more support, the Federal Reserve will lower interest rates, money gets more free, everything's a little easier. But the stock market now expects that rescue mechanism to take place. Like it's been saved for, you know, I guess is that like 40 years, right? It seems like that is part of the reason that it refuses to go down is because they know that it doesn't have to. Well, and we have a new kind of mechanism, which is taco or just this sense that Donald Trump cares a lot about the stock market.

24:18But yeah, the market just the taco stuff only works to a certain extent. Like you can only move things forward by narrative so much. And like with the tariffs, it was kind of fine because you could pretend that you were taking them on and taking them off and you could push it out. But when you enter a war, you can't really be like, never mind. And so I think that's the issue that markets are wrapping their head around. So with this expectation of rescue. But yeah, it doesn't seem like the straits going to open anytime soon. It seems like it opens potentially right before futures open on Sunday nights.