Consider Amazon (AMZN) as a core AI investment, as the market is just beginning to recognize its crucial role beyond e-commerce. The company's cloud division, AWS, is essential AI infrastructure, highlighted by a new $38 billion deal with OpenAI, while major cost-cutting measures are set to boost profitability. With its stock trading at a price-to-earnings ratio of 34, well below its five-year average of 60, it appears significantly undervalued. This AI infrastructure theme also reinforces the bullish case for NVIDIA (NVDA), whose GPUs are the industry standard for running AI models. As the foundational "picks and shovels" play on the AI industry, NVIDIA is positioned to benefit regardless of which cloud provider wins new contracts.

Amazon (AMZN)

• Amazon has secured a seven-year, $38 billion deal to provide cloud computing power to OpenAI.
• This deal is seen as a major win for Amazon's cloud division, Amazon Web Services (AWS), and helps solidify its position in the AI race.
• The podcast hosts are explicitly bullish on Amazon for several key reasons:
  • AI Leadership: The market has viewed Amazon as an "AI laggard" compared to Microsoft or NVIDIA, but this is changing. The OpenAI deal is a perfect example of its critical role.
    • AWS is the world's largest cloud provider, which is essential infrastructure for AI.
    • Amazon is investing heavily in its own AI chips, called Tranium, with sales growing 150% last quarter.
  • "Year of Efficiency": Similar to Meta's successful cost-cutting year, Amazon is dramatically reducing its corporate workforce. Wall Street typically rewards this kind of "trimming the fat," which can lead to higher profits and a rising stock price.
  • Attractive Valuation: The stock is trading at a historically low valuation.
    • Its current price-to-earnings (P/E) ratio is 34.
    • Its average P/E ratio over the last five years has been 60.
    • This suggests the stock may be undervalued compared to its historical performance and future growth potential, a concept known as mean reversion.

Takeaways

• The podcast presents a strong bullish case for Amazon, suggesting the market is just beginning to appreciate its role as a major AI player.
• Investors may want to look at Amazon not just as an e-commerce company, but as a core AI infrastructure play, similar to NVIDIA or Microsoft.
• The combination of AI growth, cost-cutting measures, and a relatively low valuation could provide a significant tailwind for the stock.
• While the stock has already risen 5% since the hosts first mentioned their bullish stance, they believe there is still room for it to grow, even at its current price of $254.

Kimberly-Clark (KMB)

• Kimberly-Clark announced it is acquiring Kenvue (KVUE) in a deal valued at $48 billion.
• The market reacted very negatively to the news, with KMB shares falling 15%, the stock's largest single-day drop in 25 years.
• The strategic goal of the acquisition is for Kimberly-Clark, known for brands like Huggies and Kleenex, to expand into the growing health and wellness sector.
• The primary reason for the negative investor reaction appears to be the massive litigation risk associated with Kenvue's products, particularly Tylenol and older talc-related lawsuits inherited from Johnson & Johnson.

Takeaways

• Investors in Kimberly-Clark are concerned that the company is taking on significant and unpredictable legal liabilities by acquiring Kenvue.
• While the long-term strategy to enter the health and wellness market may make sense, the immediate financial and legal risks are weighing heavily on the stock. This is a cautionary sign for potential investors.

Kenvue (KVUE)

• Kenvue, which was spun off from Johnson & Johnson (JNJ) last year, is being acquired by Kimberly-Clark for $21 per share.
• The acquisition price represents a 46% premium over where the stock was trading, causing KVUE shares to jump 20% on the news.
• The company has struggled since its IPO, with the stock falling 35% due to soft consumer demand and inventory issues.
• A major driver of the stock's poor performance was the Tylenol controversy, where a link was suggested between Tylenol use and autism, causing sales to fall 11% in the last quarter.
• Interestingly, the $21 per share buyout price is roughly the same level the stock traded at before the Tylenol controversy, suggesting Kimberly-Clark may believe the litigation risk is overblown and that they are acquiring the company at a discount.

Takeaways

• The acquisition provides a significant, immediate return for investors who held Kenvue stock through its recent decline.
• The deal highlights how external events and litigation fears can create potential buying opportunities for acquiring companies who believe the risk is manageable or priced-in.

NVIDIA (NVDA)

• NVIDIA is a key beneficiary of the Amazon/OpenAI deal.
• While Amazon's AWS will provide the data centers, OpenAI's AI models will run on NVIDIA's GPUs within those data centers.
• The news sent NVDA stock up 2%.

Takeaways

• This deal reinforces NVIDIA's dominant and essential position in the AI ecosystem.
• Regardless of which cloud provider (Amazon, Microsoft, Oracle) wins a major AI contract, NVIDIA is likely to benefit as its chips are the industry standard for running AI models. This makes it a "picks and shovels" play on the entire AI industry's growth.

Palantir (PLTR)

• The stock "popped" in after-hours trading following its earnings report.
• The positive movement was driven by better-than-expected earnings and strong guidance for the upcoming quarter.

Takeaways

• This is a bullish signal for Palantir, indicating strong business performance and positive future expectations from management. Investors often see strong guidance as a sign of confidence.

Bitcoin (BTC)

• Bitcoin "sank" as part of a broad crypto sell-off.
• No specific reasons for the sell-off were given in the transcript.

Takeaways

• This was a short-term bearish data point for Bitcoin and the broader cryptocurrency market at the time of the recording.

Investment Theme: Tariffs & Global Trade

• The discussion highlights significant uncertainty in the global supply chain due to tariffs, leading many businesses to adopt a "wait-and-see" approach.
• There is a major Supreme Court case that could rule the tariffs illegal. According to the prediction market Polymarket, there is a 65% chance the tariffs will be overturned, which could result in companies receiving large refunds on tariffs they've already paid.
• Potential Winners from the current tariff environment:
  • Customs brokers and logistics advisors (like Flexport) who help companies navigate the complex rules.
  • Manufacturing in Latin America (excluding Brazil), which faces lower tariff rates than Asia.
• Potential Losers from the current tariff environment:
  • American e-commerce companies, who have been hit hard by the removal of the "de minimis" rule that previously allowed duty-free imports under $800.
  • Consumers, who are likely facing higher prices on goods, particularly in e-commerce.

Takeaways

• Investors in the e-commerce and retail sectors should be aware that tariffs are creating significant cost pressures and operational challenges for these companies.
• Sectors that could benefit from a shift in manufacturing away from China include industrial and manufacturing companies in Latin America.
• The upcoming Supreme Court decision is a major catalyst to watch. If tariffs are overturned, companies that import heavily from China could see a significant financial benefit from refunds, potentially boosting their stock prices.