Dear Fellow Investor,
Most every news outlet now is headlining some version of:
“SpaceX leapfrogs Amazon to become the world’s fifth-most valuable company.” (This one’s from Financial Times.)
So I want to dig in here a little bit on the Amazon-SpaceX valuations, and where to best put your money to work this week.
Amazon hasn’t been this cheap since the 2008 financial crisis.
Right now, Amazon stock’s enterprise-value-to-EBITDA, basically its value relative to earnings, is around 10 - the same “crisis” pricing it saw during the 2008 crash.
For the last two decades that number was solidly in the 20s and 30s.
So what we see now is that the company’s value has grown much faster than its stock price.
When we look at P/E ratio, another popular measure of value, we see 30x. Meaning AMZN trades for 30x its earnings.
This after decades of its P/E hovering around 99.
By both measures, it’s trading around a third of its historical value.
Meanwhile, SpaceX.
When we look at SpaceX, which has just famously overtaken Amazon in valuation…
We meet Amazon’s enterprise-value-to-EBITDA at 10 with SpaceX’s over 500…
Amazon has “grown up” - no doubt.
But it’s trading like a blue-chip retailer - like Walmart or Costco.
Not like a growth stock.
Is that really fair for a company that, like SpaceX, is going “all-in” on AI?
And, unlike SpaceX, is highly profitable?
Here’s the Difference
Amazon’s plan to spend $200 billion on AI this year has spooked investors.
Yet, SpaceX’s own S-1 filing describes it as an “AI services and infrastructure company.”
And Elon’s record capital raise is committed to making it just that.
But here’s another way to look at things:
Analyst Nick Jones of BNP Paribas, who just reiterated his $320 price target (AMZN currently trades around $245), says:
“Concerns are overdone.”
He counters, instead of looking at Amazon’s AI spend alone, look at it relative to the backlog of demand for its services.
Every $50 billion one-time investment…
Generates $15 billion every year going forward.
Amazon has a long history of eschewing short-term shareholder expectations in favor of building for the future.
In fact, in Jeff Bezos’ very first shareholder letter he laid out the “Day 1” philosophy that is still attached to every annual report to this day:
“We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position.”
This philosophy grew Amazon to the largest retailer in the world, officially beating out Walmart last year.
Can this same strategy bring Amazon to dominate AI?
Billionaires Are Buying AMZN
Billionaires have been loading up on Amazon shares this year.
AMZN recorded 111 large billionaire buys during the most recent reporting period by investors like Ray Dalio, Bill Ackman, Ken Griffin and David Tepper.
A company half the size of Nvidia saw more buying from billionaires and hedge funds.
Activity like this tells me they believe the bottom is in.
And consider this - Wall Street analysts project SpaceX could produce $330 billion in annual revenue (according to Morgan Stanley) by 2030…
Amazon already produces more than twice that much.
SpaceX vs. Amazon
SpaceX may be a great company. It’s anyone’s guess whether the billionaires who’ve been holding long-term will cash out and finally see their payday, and how the stock price moves on the market from here.
And certainly, the SpaceX IPO has been historic.
But buying the greatest stocks at historically cheap prices also doesn’t come along every day.
It is a market gift.
What to Buy Now
I like to buy stocks when they’re cheap.
I also like to buy stocks when they’re little-known and still have a ton of upside value.
That’s not SpaceX. And it’s not Amazon, either.
They both may be great investments in the long-term.
I hope so.
Billionaires are selling NVIDIA and buying this:
Over the past several quarters, some of the sharpest minds in finance have been quietly reshuffling their portfolios.
Ken Griffin of Citadel sold more than 2.4 million shares of NVIDIA — and bought over a million shares of a tiny chipmaker most Americans have never heard of.
Israel Englander of Millennium Management dumped 720,000 NVIDIA shares. And loaded up on the same company.
Stanley Druckenmiller. Renaissance Technologies. Even Google's parent company Alphabet.
All moving in the same direction. Into the same stock.
They’re not waiting for a headline…
As the smart money always does, they’re buying before it.
If you ever wish you could’ve bought Nvidia or SpaceX or Amazon before the world caught on, this could be your second chance.
"The Buck Stops Here,"
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Written by Dylan Jovine