Amazon AWS Best Positioned Cloud? Hatem Dhiab's AMZN Compute & Backlog Bull Case

Nicole (0:00)

All right, let's go deep on AMZN. Looking at AMZN in our tech spotlight, joining us right now, Hatem Dhiab, managing partner, Gerber Kawasaki, Wealth and Investment Management. Let's talk about AMZN, what it really is, and that AMZN Web Services segment part of AMZN.

Hatem Dhiab (0:23)

Hi, Nicole, how are you?

Nicole (0:28)

It's great to see you, Hatem. Tell us a little bit about AMZN.

Hatem Dhiab (0:33)

Yeah, I mean, AWS is really a fantastic business. I think next year is a 25-year anniversary of AWS. Started basically as a merchant business services, and now it's a business that's going to do probably $200 billion in revenue. They had five consecutive quarters of growing or accelerating growth, and at about 37% the last quarter, and the margins are just fantastic. So it's really one of the jewels in all of AMZNs because it's a core competency for them, building data centers and being able to provide digital services.

Plus, they are one of the biggest providers of compute to Anthropic, which obviously is one of the biggest companies in the AI revolution. So there's so many good things. They have their own silicon, so their own chips, Traneum, which is the main training chips for Anthropic. They have accelerating revenue. So for me, it's really a fantastic business, and I'm really a mispriced, I think, going forward.

Nicole (1:46)

When we think about the landscape here, you talked about obviously the compute that it provides to Anthropic and the growth that has seen quarter over quarter.

We think about the bull market that really started about four years ago and has taken off since then based on AI and the CapEx spend. Can this continue for Amazon? Is it well and best position to handle the compute AI revelation? Are they in the right place?

Hatem Dhiab (2:14)

Well, first of all, if this can continue, I'd say absolutely because every watt of compute they bring online is already spoken for. They already have $500 billion of pre-sold compute over the next two years, right? So yeah, I think it will continue. But second of all, if you think that inference is going to keep growing as Agente comes on, as robotics comes on, as we all really kind of put AI in everything that we do, Amazon will continue to be that flywheel that's going to be able to provide the chips, the training, the inference, and then also capacity, right? Because the capacity is not growing at one or two times, it's growing at a thousand times.

So I think that's why people have to really see Amazon as really continue to be at the core of anything that involves AI growth.

Nicole (3:16)

You talked about some of the comps that you were doing with the likes of Alphabet's Cloud Backlog that grew $50 billion, and then you talked about Amazon's Backlog which grew faster. Tell me about that, why Amazon growing faster, maybe some of the numbers?

Hatem Dhiab (3:33)

Well, it's a bigger base, right? I think Alphabet grew about 65 or 70 percent on a much, much smaller base. So Alphabet grew about $50 billion, their Backlog. Amazon grew their Backlog from 370 to 500 billion dollars. So $130 billion in new contracts signed for the next two years.

They are just simply the biggest player in the space, and they are the biggest players because they are being at it for 25 years now. Again, going back to what I said earlier, it's really their core competency. When you think about building physical data centers, Alphabet is newer to this, where Amazon has been doing this for a long time. So they know how to get the permitting, they know how to get the infrastructure built correctly, and they know really how to wire all the digital instruments to be able to do this in the right way. So that's why I think they are the other head, and that's why a lot of companies, including Apple, trust them for their AWS or their cloud services.

Nicole (4:44)

Really, the margins too are pretty good, aren't they, when you think about Amazon Web Services, at least part of, I see one stat of 39.4%. The margins look pretty good, and that AWS is, in fact, the profit engine here. Is that right?

Hatem Dhiab (5:01)

Absolutely. I mean, retail, which is obviously a bigger business than AWS, has very, very low margins. But the digital services, once you get customers, you don't have any more customer acquisition costs. So for Amazon, it's really been able to maintain that customer, grow the services they sell to them, and then obviously building that infrastructure, there is a depreciation of five years on the chips and maybe 10 to 15 years on the actual physical infrastructure.