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21 January 2020
Video commentary for January 20th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Amazon Is Left Out of Mega-Cap Tech Surge to Records
This article by Ryan Vlastelica for Bloomberg may be of interest to subscribers. Here is a section:
Because of its long-term prospects, Amazon is about as close as a stock can be to a consensus choice among Wall Street firms. Over the near term, though, it is “the most hotly debated among investors” as “debates persist on both AWS and next day shipping efforts,” according to UBS analyst Eric Sheridan, referring to its Amazon Web Services cloud-computing business.
Since the start of 2019, Amazon shares are up about 24%, below the 32% rise of the S&P 500, as well as the much larger gains seen in other bellwethers. Microsoft and Facebook are both up more than 60% since the start of last year, while Apple has doubled. The rally resulted in trillion-dollar valuations for Apple, Microsoft and Google-parent Alphabet, a milestone that Amazon briefly eclipsed in 2018.
The underperformance reflects concerns over Amazon’s earnings trends, even as it has continued to grow revenue at a double-digit clip. Major investments into initiatives like one-day shipping are seen as headwinds, and shares “may be range bound ‘tactically’” given the impact of this spending, Morgan Stanley wrote on Thursday. The firm added that “near-term profitability is likely to still disappoint” because of these investments, even as it sees the effect as temporary and one-day shipping deepening Amazon’s competitive moat within e-commerce.
Another key issue is the waning dominance of Amazon Web Services, which has long been a major driver for earnings and margins, but has faced growing competition from rivals like Alphabet and especially Microsoft. According to Bloomberg Intelligence, which cited IDC data, Amazon Web Services was 12 times larger than Microsoft’s cloud business in 2014. By 2018, the most recent year for which data is available, it was just four times larger.
Eoin Treacy's view
Amazon is dependent on both the dominance of its cloud business and the online retail sector. There are not many real competitors for the online market because of the high barrier to entry. The cloud business is a different story. It depends on server farms and internet connections and is easier for well-funded large companies to build a position in. Microsoft and Alphabet in particular are competing heavily with Amazon in this sector.
You Bet!
Thanks to a subscriber for this memo from Howard Marks.
Eoin Treacy's view
This is a thoughtful exposition of the framework around which the likelihood of profits from accelerating trends can be considered.
Why palladium prices keep hitting new highs and rhodium has already rallied by over 40% this year
This article from MarketWatch may be of interest to subscribers. Here is a section:
Kavalis of Metals Focus, meanwhile, says original equipment manufacturers “will be wary to make such dramatic changes to their after-treatment systems and risk failing regulatory compliance for a saving which, while significant, is only a small part of their overall costs.”
Still, if the gap between platinum and palladium prices continues to widen, Kavalis says he wouldn’t rule it out, but it’s unlikely to happen in the near term.
Palladium is likely to continue to make new highs this year, and probably beyond, even though “short-term and short-lived corrections are also in the cards,” says Kavalis. Rhodium may reach a new high this year, he says, with the metal’s fundamentals so strong that he struggles to pick a top for the market. Rhodium peaked at more than $10,000 an ounce in 2008.
Eoin Treacy's view
The continued surge in palladium pricing is picking up pace. The global economic recovery supports demand for vehicles even as tighter environmental regulations ensure more palladium is required for each catalytic converter.