IMO AWS should be spun out as a separate company.
I’m sure Amazon.com would be fine, but it would take a chunk out of their margins. I’m also sure that their X% ownership of the spun out AWS would cover the difference.
From the point of view of running an enterprise that lasts, though, diversification is important. Financially diversification is probably, in general, bad for EPS. But if you want to run a lasting empire, it's best to not tie it to just a narrow thing.
multiplying huge revenue by a small percentage to get a big positive number
to multiplying huge revenue by a small negative percentage to get a big negative number
So that's how Kroger managed to lose billions over the last couple of quarters, or how small changes in shoplifting/shrinkage based on store makeup can cause losses to some chains, etc.
Certainly couldn't be someone in government trying to pin the NDX100 index.
DocuSign is currently valued at 30 times its annual earnings. Adobe is currently 16. Amazon is 28 -- has been as high as 50 recently. NVDA is 44.
Investors are basically starting to realise that enterprise are not going to subscribe to software like DocuSign for 50 years. They'll probably just move to odoo or zohosign or something and save a lot of money. So its probably a better bet to put that capital into something like Nvidia or Tesla or whatever. it also looks like the US Fed isn't going to cut rates, so capital is getting more expensive.
Of course, if you are a CEO its great to blame all this on AI and then tell your investors you are increasing AI in your business (see: salesforce whose stock price is down 42% in a year and is now trading at 25x earnings)
If everyone in the industry benchmarks on more or less the same multiples, it becomes a good idea to buy any b2b crud saas trading at 10x earnings because if the big boys see it they'll probably bid it up to 30x
the other classic move is to take a business which really isn't even a new technology, like revolut, and call it a tech business. now suddenly a bank can trade on a 50x earnings multiple instead of 15x like say a bank. many such cases~
You are playing pretty fast and loose with your definition of a "software company" when you include Amazon and NVIDIA in your list. Amazon is many things but it is not a "software company" and neither is "NVIDIA".
Software company is a pretty good description for both.
I don’t suppose you know a good “for dummies” explanation of why CUDA is such an insurmountable moat for them?
Like, what is it about that software that AMD can’t produce for their own hardware, or for a most important subset, with these $1T market stakes?
the second problem is that so many libraries and existing software is cuda only. even some obscure hardware stuff. i discovered the hard way that some AMD thinkpads dont support thunderbolt transfer speeds on their usb-c ports, whereas nvidia ones do
the third problem is that the cost to develop a cuda equivalent is so great that its cheaper for companies like google to make TPU and amazon to make Trainium. its literally cheaper to make an entire new chipset than it is to fix AMd. i dont see companies like apple/amzn/goog etc fixing AMDs chips
Theoretically the moat isn’t insurmountable and AMD has made some inroads thanks to the open source community but in practice a generic CUDA layer requires a ton of R&D that AMD hasn’t been able to afford since the ATI acquisition. It’s been fighting for its existence for most of that time and just never had the money to invest in catching up to NVIDIA beyond the hardware. Even something as seemingly simple as porting the BLAS library to CUDA is a significant undertaking that has to validate numerical codes while dealing with floating point subtleties. The CPU versions of these libraries are so foundational and hard to get right that they’re still written in FORTRAN and haven’t changed much in decades. Everything built on top of those libraries then requires having customers who can help you test and profile real code in use. When people say that software isn’t a moat they’re talking about basic CRUD over a business domain where all it takes is a competent developer and someone with experience in the industry to replicate. CUDA is about as far from that as you can get in software without stepping on Mentor Graphics’ or Dassault’s toes.
There’s a second factor which is that hardware companies tend to have horrible software cultures, especially when silicon is the center of gravity. The hardware guys in leadership discount the value of software and that philosophy works itself down the hierarchy. In this respect NVIDIA is very much an outlier and it shows in CUDA. Their moat isn’t just the software but the organization that allowed it to flourish in a hardware company, which predates their success in AI (NVIDIA has worked with game developers for decades to optimize individual games).
AMD may develop their own software layer, but a lot of things already work on CUDA, and the job to port this to a different platform may be non-trivial (or even possible depending on the level of feature parity).
although one could argue disingenuously that nvda is a software company because the product they ultimately manufacture is a bunch of blueprints they email to tsmc or samsung who then actually make the chips
Plenty of AIs have flawed epistemology. But nice try.
you could decide that if you are a very large company, building software internally to replace a SaaS product is a path forward. Or replacing a premium software like DocuSign with a cheap one like Zoho sign. or just building your own proprietary electronic signature app
It is however impractical for big company to start manufacturing cars or designing competitive GPUs
so the earnings of tesla and nvidia is theoretically more 'stable' than a software application company like salesforce, adobe, etc.
this analysis ignores both the size of the company, and what it does, or whether or not any one of them is a good investment
Moreover they look like large, inefficient organizations with a lot of human veto points that prevent innovation (requiring more human coordination is an anti moat now)
Stripe, Square, Shopify, Google, all thrived in some part because their services take a hard problem and make it easier to use. Now more people can take a hard problem and make it easier to use.
All you have to do is look around (esp 5+ years ago) and see the many many BAD, unstable, hard to use, slow, etc versions of these companies
I think the new nominated Fed Chair is also a hard money advocate and is spooking USD alternatives (gold, silver, BTC, etc.) But hard money can be quite hard on the economy, so that could limit growth.
Investment is all about belief. When the root cause is the willies, then we hallucinate reasons together.
Crypto and memes have demonstrated us a lot about the drives of individual investors.
Unfortunately it seems that professional investors are not that much more rational (from my limited personal experience with a small hedge fund, and from my years of looking at markets).
My favourite term has always been "taking profits" which is generated by the technical analysis (I loath that term) of looking at the prices: taking an effect and publishing a cause (trying to sound smart).
We are deeply irrational beings; often the more you go up a professional ladder the more rationalisation you see.
During unstable periods, we see lots of weird side-effects and there is a lot that doesn't seem to make sense.
Edit: a better meme could be "The use of AI by funds is destabilising markets"
Disclaimer: I am not a professional investor. I am a cynic.
USD devalued ~10% last year, so some of the losses are already priced into the DJI. When you account for that and sprinkle in ~3% inflation, it has lost value despite being up ~11% in the last year.
https://finance.yahoo.com/news/amazon-plans-200b-ai-spending...
It is encouraging to see that investors are punishing what is the greatest misallocation of capital since the dotcom bubble. Investors have figured out that AI is limited to probabilistic and annoying chatbots that are for entertainment and for looking up trivia questions.
Bear with me here, I actually do have a point to make: I took my stepdaughter out for breakfast this morning. She is a financial wizard specializing in running large cities, and to explain to her the current craziness of overspending on AI infrastructure, I described "exponential spending increases for linear economic value increases." I may be wrong about this, but I am all for targeting the sweet spot of more efficient smaller AI models that are fit to purpose for specific use cases.
This type of commentary reminds me of the people during the dot com boom who were adamant that e-commerce was all film flam and would never take off.
Consider that it is possible that both (1) we are in an investment bubble and (2) we are underestimating the long term impact of LLMs and perhaps mispredicting where they will land.
> AI is limited to probabilistic and annoying chatbots that are for entertainment and for looking up trivia questions.
That is not a rational assessment of the utility that the technology provides, even today.
This type of commentary reminds of people propping up these LLM MLMs.
Unfortunately, it seems investors now think that all paid software will be replaced by AI generated software, somehow open source projects laundered through generative AI models should finally convince enterprise customers to go with free.
Some of these AI critical posts really are an exercise in Gell Mann Amnesia, man.