Today on “Good Buy or Goodbye,” host Julie Hyman joins GraniteShares founder and CEO Will Lind to dive deeper into the relationship between retail and artificial intelligence.
Lind rates Amazon (AMZN) a Buy and is focused on the momentum surrounding the company's $2 trillion market cap. He explains how Amazon Web Services is benefiting from demand for AI, noting that Amazon's cost-cutting and efficiency measures are another tailwind.
Meanwhile, Lind would avoid Walgreens Boots Alliance (WBA) due to disappointing third-quarter earnings, concerns about consumer weakness, and a lack of an AI story to address the challenges of the traditional retail model.
For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination.
This article was written by Gabriel Roy
Video Transcript
The world is full of big, noisy, universal stocks.
Welcome, goodbye or goodbye.
Our goal.
It helps you cut through the noise and find the best moves for your portfolio.
Today we will be looking at the relationship between retail and artificial intelligence.
I'm here with my granite chair.
Is the founder and CEO right?
I can see it.
Okay, thanks for being here, let's talk about buying stocks.
That's Amazon. The stock has already performed pretty well over the past year.
It's up about 50% here.
So let me address your continuing assertion as to why it could go up.
And it starts with the market capitalization milestone.
And in a sense, it could be said that the wind is blowing in our favor.
That is correct.
The momentum is incredible.
Clearly, the company has made a number of changes since the pandemic, all of which have greatly benefited the company.
And I think $2 trillion is a great milestone that signals Amazon's resurgence.
But now it sits alongside NVIDIA, Microsoft and other companies with market capitalizations of $2 trillion.
And speaking of other companies, of course, one of the reasons they're making big profits is because of what's going on with I.
So where does Amazon fit into that world right now?
So Amazon is lucky because it makes money from its Amazon Web Services business.
It's one of the hyperscalar cloud data center businesses, benefiting from the huge demand for I and I-based products we're seeing all over the market.
This has been one of Amazon's weaknesses over the past few years, leading to slower growth in its AWS business.
But with demand for I, AWS and Amazon are starting to see a resurgence in their offerings.
Of course, I is used in retail as well as AWS.
I mean, they've always used machine learning and “me,” and now they think they know everything about me.
Unfortunately, I am a good customer so I'm sure they use it to their advantage.
absolutely.
And this situation is only going to get better in the future.
So the convenience and everything that Amazon does to provide the best products and services to consumers will be further enhanced by further advancements to sell more products.
And finally, it's not just a demand-side issue, they're still cutting costs and getting leaner.
That's right, again.
Perhaps one of the greatest achievements that Amazon has achieved was in an environment where interest rates were at zero and markets were flooded with liquidity.
The market share-chasing strategy that Amazon was pursuing was probably the right idea, or the right strategy, at the time.
But in an interest rate environment that is repricing all business models in this way, the focus on costs is clear.
Improving profit margins requires a focus on efficiency, and that was the discipline instilled in Amazon.
And of course, the new CEO has been focusing on the business from a margin perspective for the last few years.
Profitability has improved significantly and we expect to continue or benefit from cost reductions.
No, of course.
So, I think the company laid off between 20,000 and 27,000 people.
Over the past few years, there has been a big effort to improve the logistical side of the business to better manage inventory.
And I think the market obviously likes that part of the Amazon story and that's part of the $2 trillion market cap.
So, from that perspective, I don't see any reason to believe that the company won't continue to do this.
Now, let's talk about what could be a potential risk here.
This means AWS may slow down.
Is it because of market share issues or how did that happen?
I think it's the same one I've seen before.
For example, if a.I hasn't been the growth story that maybe everyone expected, or maybe it's an underspending from a competitive standpoint relative to other competitors.
Amazon is not the only company competing in this space with other hyperscalable companies, such as Microsoft's products and Google's cloud solutions, so it could suffer from competitive pressures on that front.
Now, let me tell you about a stock I think you should avoid in the retail sector: Walgreens Boots Alliance.
The stock has already fallen by about 50% over the past year, roughly the same as what we've seen with Amazon.
And the company just released third-quarter numbers that the market didn't like, and then revised its outlook down.
That's why I've struggled so much.
So yes, the third quarter numbers were terrible, and I think once again it's instructive to position it versus a stock like Amazon to really think about the challenges that a lot of traditional retailers are facing, which is a combination of all kinds of factors.
Unfortunately, these are very tough times for Walgreens franchisees and they are closing many stores.
This means that consumers in general have weaknesses.
How is it playing out at Walgreens?
Because, on the one hand, companies sell things that people need, such as medicines.
But I think there is also an element of discretion.
That is correct.
In some ways, this is like a two-part story.
On the one hand, Walgreens has many brick-and-mortar stores and obviously doesn't have the technology, online delivery and logistics elements of its business that a company like Amazon enjoys.
But with too many brick-and-mortar stores, companies are trying to streamline by cutting underperforming stores and running pharmacy operations within them.
The healthcare business is actually doing pretty well, but the retail business is not doing as well, and that's because of competition from the bigger players.
Of course, another challenge for pharmacies is the fact that they do not have full control over the pharmaceutical market and the prices they charge customers for prescription drugs.
And it's not just a problem with Walgreens itself, it's a broader problem.
I mean, there are some pressures there, there are some macro pressures.
And finally, with regards to Walgreens, is there an I here? Again, there is no AI talk. This is because Walgreens is a traditional retailer and therefore cannot afford to rely on hyper-scaling cloud data businesses, or at least cannot afford to be part of those services.
And in terms of how companies like Amazon have improved the convenience element, I think since the pandemic, consumers have become increasingly accustomed to convenience in everything, and competing in that environment again is going to be particularly challenging for these more traditional retailers.
Now, let's talk about what could work for Walgreens, and that is leaning into the health care business, which you said is doing well.
That is correct.
And we all know that there are demographic issues around health care in this country, and we all also know that health care is a fast-growing business on a macro level and is only going to get stronger.
As we all know, people are retiring, creating an increased demand for healthcare products and services.
But as I said, that business unit is actually doing quite well.
This is about streamlining parts of the business that are underperforming, if that can be achieved, and I think that is clearly part of the CEO's strategy.
As part of the company's strategy to eliminate underperforming stores, streamline its product line and focus more on health care, surely that's a positive for the business?
Well, let's see if that happens.
By the way, you don't own any stocks in either of them, do you?
no i don't.
Okay, so thank you for being here.
Nice to meet you.
And thank you very much for watching Goodbye, Goodbye.
We'll have a new episode next week at 3:30pm ET.
