What to watch from Google and Amazon earnings

Key Concepts

• Gemini: Google’s AI model powering search, cloud services, and various products.
• AWS (Amazon Web Services): Amazon’s cloud computing platform, experiencing renewed growth due to increased capacity.
• TPUs (Tensor Processing Units): Google’s custom-designed AI accelerator chips.
• Nova & Bedrock: Amazon’s AI models and model garden, respectively, focusing on cost-effectiveness and accessibility.
• Tranium: Amazon’s AI chips, currently on version 3 with version 4 upcoming, used by companies like Anthropic.
• GAPI (Gross Amazon Profit Improvement): A metric reflecting Amazon’s profitability improvements through efficiency gains.
• Agentic Commerce: A developing area of e-commerce focused on AI-powered shopping assistants and personalized experiences.

Market Response to Tech Earnings & Future Outlook

The discussion began with the context of recent earnings reports from Meta, Microsoft, and Apple, noting a mixed reception from investors and increased pressure on tech giants to demonstrate growth fueled by their investments. Wall Street is signaling a need for tangible results. The focus then shifted to upcoming earnings reports from Google (Alphabet) and Amazon.

Meta’s Impact on Alphabet & Amazon

Analyst Ron Josie highlighted a positive read-through from Meta’s surprisingly strong advertising revenue growth to both Alphabet and Amazon. While Meta’s success is partly due to its own AI-powered ranking and recommendation models, it also reflects a generally “healthy online advertising market” benefiting all major players. This led to incrementally positive outlooks for Google and Amazon post-Meta’s report, and even Reddit.

Google & the Gemini Revolution

A significant portion of the conversation centered on Google and the impact of its Gemini AI model. Josie described Gemini as a catalyst for innovation across the entire organization, impacting search, cloud services, and numerous products like Gmail and Maps.

• Search Acceleration: Gemini is driving accelerated query growth in Google Search, with a merging of AI Overview, AI mode, and core search functionalities into a unified experience potentially happening this year.
• Google Cloud Growth: Gemini is unlocking new revenue opportunities for Google Cloud, leveraging Google’s TPUs (Tensor Processing Units) and attracting enterprise customers.
• Stock Valuation: Despite a 70% increase in stock price over the last 12 months, Josie maintains a “buy” rating on Alphabet, believing continued strength in search and Google Cloud, powered by Gemini, can justify the current multiple (mid-20x GAAP EPS). He suggests that stable or accelerating search revenue growth, similar to Meta’s performance, could be a significant catalyst.

Amazon: A Top Pick for 2024

Amazon was identified as the analyst’s top pick for 2024, followed closely by Google. The key drivers for this bullish outlook include:

• AWS Reacceleration: 2025 is seen as the year Amazon resolved capacity constraints, enabling AWS to resume accelerated growth.
• Retail Resilience: Amazon’s North American retail business is maintaining market share despite increased competition from Walmart.
• Grocery & Essentials Expansion: Growth in perishables and essential goods is increasing customer wallet share and driving higher conversion rates, with this segment already representing $150 billion in revenue.
• Profitability Improvements: GAPI (Gross Amazon Profit Improvement) is improving due to organizational efficiency and fulfillment center optimization.
• Efficiency Gains: Increased efficiency across the organization is contributing to overall profitability.

Amazon & AI: Catching Up or Strategically Positioned?

Addressing the perception that Amazon is lagging behind Google in AI, Josie argued that Amazon possesses all the necessary tools.

• Nova Models: Amazon offers cost-effective AI models (Nova) for clients.
• Bedrock: Amazon’s “model garden” (Bedrock) provides access to a variety of AI models.
• Tranium Chips: Amazon is developing its own AI chips (Tranium, currently on version 3, with version 4 coming soon) and is already seeing adoption by AI-native companies like Anthropic.

While acknowledging Amazon doesn’t have a Gemini equivalent or chips matching Nvidia’s GPUs or Google’s TPUs, Josie believes Amazon’s strategy is well-positioned for AI adoption.

Logical Connections & Synthesis

The conversation flowed logically from a broad market overview to specific analyses of Meta, Google, and Amazon. The discussion consistently linked AI development (particularly Gemini) to potential revenue growth and stock performance. The analyst emphasized the interconnectedness of different business segments within each company – for example, how Gemini impacts both Google Search and Google Cloud. The comparison between Amazon and Google in AI highlighted different strategic approaches: Google focusing on leading-edge models and hardware, while Amazon prioritizes cost-effectiveness and accessibility.

Main Takeaway: Despite market volatility and investor scrutiny, both Google and Amazon are positioned for continued growth, driven by their respective AI strategies and core business strengths. The analyst’s “buy” ratings on both stocks reflect confidence in their ability to deliver tangible results and capitalize on emerging opportunities.