Thanks for reading The Briefing, our nightly column where we break down the day’s news. If you like what you see, I encourage you to subscribe to our reporting here.
Greetings!
It’s the quiet before the storm of earnings season, which starts in a week or two. While we wait for the third-quarter updates, here’s a thought: Investor enthusiasm for semiconductor stocks and blue-sky vision companies like SpaceX appears to have sucked money out of stocks of long-established tech companies. Some are now trading at bargain-basement prices. We’re thinking specifically of Amazon, whose stock really deserves a bit more love.
We know the gripes: Like Alphabet and Meta, Amazon is spending an absolute ton—$220 billion this year alone—on capital expenditures to build out its AI data center capacity. That’s not without risk, for sure: The investment depends on business demand for AI services taking off. Even so, that can’t justify Amazon trading at a discount to Walmart, as it has done for the last 18 months or so. Walmart is expected to grow revenue this year by about 5.6%—about a third of Amazon’s estimated growth rate. And yet Amazon is trading at about 29 times forward earnings, compared with 37 times for Walmart, according to Koyfin data.
Moreover, while Walmart is a predominantly brick-and-mortar grocery store chain, Amazon has a much more diverse business. It owns the dominant online shopping service, where its retail sales alone grew 13% in the first half. It’s also the biggest cloud provider and a major film and television business. And it’s got a bunch of other bits and pieces, including its nascent Leo satellite service, which is trying to compete with SpaceX in satellite-delivered broadband. It’s not hard to make the case that with a market capitalization of $2.8 trillion, Amazon is a bit undervalued.
Consider this math: AWS should be worth at least $1 trillion, if not much more, given its expected growth in the next couple of years and where small neoclouds like CoreWeave and Nebius are trading. The film and TV studio business should be worth at least as much as Netflix, which has a market capitalization of $300 billion. Then there’s the shopping business, including merchant services, ads and subscriptions. They’re all tied together in various ways, which complicates things.
Online sales and merchant services, excluding ads and subscriptions, generated revenue of $468 billion in the 12 months to June, growing at about 12%, which means it could hit $500 billion this year. If you apply Amazon’s forward revenue multiple of 3.3 to that number, the online shopping side is worth about $1.7 trillion. Then there’s the ad business, which is an $80 billion a year business right now, growing at 20% to 25% annually. It’s mostly promotional spending for merchants on Amazon’s platform, which makes it less valuable than ads on Meta or Google, but it should still add hundreds of millions in value to Amazon.
There’s upside elsewhere. At Goldman Sachs’ recent Communicopia conference, tech analyst Eric Sheridan made the case that Amazon should be among the best-positioned companies to benefit from the rise of robots, helping automate more of the logistics and delivery parts of its shopping business and improving profit margins. Of course, there are lots of variables, even aside from the uncertainty about the return on the AWS capex outlay. We don’t know how the rise of AI agents will change consumer behavior, if at all. If agent traffic largely replaces humans scrolling on Amazon, its ad business could be wiped out.
To be sure, Amazon’s status as a conglomerate likely dooms its stock to always trade at a discount to its real value. It’s possible that one day the company will break up into two or three pieces, with AWS the most logical business to be carved off. That day is a ways off, however, as AWS needs cash flow flowing from the shopping business to finance its capex right now. But even the possibility of a breakup points up the opportunity for investors with a long term time horizon.
Anthropic’s Rogue Agents
AI agents seem to have a good imagination, if not a sense of humor. That’s one conclusion from Anthropic’s blog post on Friday which detailed new “examples of unintended model actions” it had observed during evaluations of Claude.
One example, which drew some attention over the weekend, was prompted by Claude being told to run some tasks on “randomly selected webpages.” The model “landed on a page referencing an unsolved homicide; that page contained a tip form run by a police department.” Claude had been instructed “never to log in, create accounts, enter personal data, make purchases or submit anything destructive, but the instructions did not rule out form submissions.”
So Claude “filled out the form with the following: ‘I may have information regarding this case. I recall seeing someone matching the description in the area around” the street in question…please contact me if this information is relevant.”
The submission was flagged as spam and never forwarded for investigation. Still, you have to marvel at Claude’s ability to act like a drunken teenager.
In Other News
• SoftBank Group CEO Masayoshi Son is looking to raise up to $100 billion from Gulf investors to finance his AI investments, The Financial Times reported.
• Firmus Grid, an AI cloud company backed by Nvidia, has pulled what would have been Australia’s biggest initial public offering in almost 30 years. The Sydney-based company had planned to raise nearly $5 billion at a valuation above $30 billion. It cited market volatility and said it will seek private funding instead.
• Nuclear reactor startup Valar Atomics says it has sued one of its early backers, Day One Ventures, in Delaware court after shutting out the venture firm from its recent $1 billion funding round. Founders rarely sue their own investors, but Valar is asking the court to declare that the startup acted properly, after Day One refused to give up its right to invest in the Sequoia Capital-led funding round.
Friday on The Information’s TITV
Check out Friday's episode of TITV in which Akash Pasricha speaks with Asia Bureau Chief Jing Yang about China's increasingly crowded AI model race.
Recommended Newsletter
Start your day with Applied AI, the newsletter from The Information that uncovers how leading businesses are leveraging AI to automate tasks across the board. Subscribe now for free to get it delivered straight to your inbox twice a week.
The Information's WTF Summit returns to Napa Valley, bringing together the women shaping tech, media and finance. Confirmed speakers include Whitney Wolfe Herd (Bumble), Anne Wojcicki (23andMe Research Institute), Kim Posnett (Goldman Sachs) and comedian & entrepreneur Whitney Cummings, with more to come. Expect candid conversations and a room built for meaningful exchange. Tickets are selling fast—reserve your spot now.
The Information's Dakin Campbell will host a panel discussion on the evolving landscape of public listings and exit opportunities during SF Tech Week, sponsored by NYSE.