00:00 Speaker A
The final four, Alphabet, Walmart, Amazon, and McDonald’s all vying for a ticket to the final. Let’s focus on the right side of the bracket and joining me is James Dammer, Main Street Research’s Chief Investment officer for Market Madness brought to you by Everpure. Those who were sad that basketball market madness were over or March Madness was over. We we’ve got you. So James, um, so we’re we’re taking a look here at Amazon versus McDonald’s. Um, obviously two very different companies, both very compelling stories, which do you find more compelling?
00:43 Speaker B
Good to see you Julie. Um, you know, I you have to lean way into Amazon here. Uh these are both exceptionally great companies. But I think investors and this is my message to investors, look at what you think the economy can do if the straight Hormuz is open, which we think it will be, and which of these is going to be the real leader? And without question, it’s Amazon. They’re both trading at the same PE multiple, but you’re going to get a ton more growth out of the Amazon play.
01:17 Speaker A
Yeah, that’s pretty surprising that their PE is is similar at these levels. Not necessarily what you would expect here. Um, let’s dig into Amazon a little bit more here, especially since this company’s um CEO Andy Jassy just out with his annual shareholder level letter, excuse me, and he really dug into the business and all of the different areas that they’re in. Obviously, it’s a very diversified business. I was struck James by um the section where he talks about the company’s chipmaking and that it’s now at a $20 billion dollar annual run rate. He talked about offering a cheaper alternative to Nvidia chips, although he says, we’re still using Nvidia chips for clients of AWS, but we’re also making our own. Um, kind of how do you think about those different business lines and and what you find most exciting there?
02:18 Speaker B
Yeah, and and that’s a great point. Jassy talking about expenses. That’s where investors get nervous, right? How much money are they going to throw at trying to design and manufacture their own chips. It makes sense in the long run, but in the short run, it can spook investors. But I think is really important for investors, since we specialize in individual stocks at Main Street, is look at the AWS business that’s that’s part of the biggest part of Amazon. And that is growing at such an incredible rate. I think it can absorb the expense that’s going to go down on trying to develop their own chips. And I love that he said, you know, we’re still wedded to Nvidia. I think that’s that was very important for investors to hear that. But that, um, you know, that big deal they have with Open AI, a 50 billion dollar deal tells you that um, you know, AWS part of the business model is extremely uh robust.
03:25 Speaker A
You know, um Amazon like many of its big tech peers has been hit. It’s down now a little more than 2% this year. So it’s not a huge uh drawdown, but it’s more of a drawdown from from its highs. Um and sentiment around big tech, even before the Iran war was not great, right? Um there were a lot of concerns about software, concerns about spending, concerns about AI adoption generally. Um, where do you think we are on that and how do you think Amazon and some of its peers for that matter sort of come back from that?
04:02 Speaker B
Yeah, it’s, you know, the the stocks, the whole AI trade has been asleep. and what happened to the AI bubble that we were all worried about. The air has slowly come out over the last four months. And at Main Street, we think that is a tremendous value play. You, it’s so unusual and you might remember the 90s, you’re probably too young. The 90s big tech cycle, we had very just a handful of pauses like this and they were all windows of opportunity. So we think that Amazon here is a value play in the non-infrastructure AI play, meaning you’re getting away from the chips like the Nvidias and the ASMLs and the Taiwan. If you go to that next generation, I think Amazon’s great position here. The PE’s contracted over four months. Nobody seems to be interested. That’s when you want to go.
05:07 Speaker A
Um just one final here on McDonald’s to take the other side of it and dig into that a little bit more. I mean, McDonald’s um has gotten a lot of attention lately after its CEO ate that burger on camera. Um and you know, it feels like that there is some enthusiasm around the stock that you know, if people are looking for value, maybe they’re turning to customers that is or turning to a place like McDonald’s. Um, so how are you thinking about that thesis around that company?
05:43 Speaker B
The CEO eating that stuff every day is so amazing for the brand what a CEO will do. I just, that’s just fantastic. And I think McDonald’s, as I said, it’s a great company. um, but you know, again, this is a world of choice. And if you think the economy is going to have a tough road over the next three or four quarters, this is a company that has tremendously consistent growth and profitability. That’s why it trades at a relatively high multiple to its growth rate. So I can see why investors would say, well, you know, this is a safer play. I know those earnings are going to stay consistent no matter what. I in in our view, I just think that’s a, that’s a conservative stance, maybe as a part of the portfolio, but I wouldn’t do it do a whole lot of that.
06:40 Speaker A
So, in general, James, if I’m reading between the lines here, it sounds like in general you are um sort of more growth oriented right now than you would be looking sort of defensively positioned.
06:55 Speaker B
Yeah, we think the economy going into the war was in great shape. We had great productivity growth, we still do. And we think earnings over the next few weeks, here here they come, are going to be way better than expected. And um, you know, we’ll get past this this big oil jolt and uh the market goes to new highs by the end of the year. It’s going to be led by the real growth stories, not necessarily the McDonald’s, but more of the Amazons.
07:22 Speaker A
We’ll talk to you again soon to see how that’s going. James, thanks so much. And you can stay with Yahoo finance to see who will meet Amazon in the final. Alphabet taking on Walmart. That’s coming up Friday on market domination to determine those last two.
