Going Long on Amazon

July 1, 2018 |  By Mishka

Amazon is an ETF in itself

Amazon stock has an hit all-time high which has made it a continual topic of conversation on financial media channels as to whether it is time to buy or sell. My personal opinion is that it’s a definite buy.

The reason is because it’s a diversification play in itself. While a lot of financial institutions would advise one to invest in a tech ETF (exchange traded fund), a lot of those ETFs have the hedge ability to limit your downside, but consequently put a ceiling on your returns. In other words, if you invest in an exchange traded fund, it will diversify you in the tech sector, but simultaneously give you positions that you don’t necessarily want. Diversification is a way for financial institutions to limit risk when overseeing clients’ assets, but in many ways diversification can be the enemy of the high upside returns we crave. I don’t want to mix mayo in my peanut butter and jelly, just like I don’t want to mix Microsoft in with my Netflix and Amazon. I don’t just want my cake, I want my cake and eat it too. With Amazon, you don’t necessarily have to make that compromise because of its diversity in the marketplace.

Of course they are an E-commerce giant, and yes they bought Whole Foods- but the firm is really much more than that. A division that is firmly overlooked in the market is AWS (Amazon Web Services). AWS is extremely important because it controls 42% of the total cloud computing marketplace.

I can’t give names, but I do know firms that have Microsoft funding (and Microsoft has an extensive cloud network) and still insist on hosting their sites on Amazon cloud servers. Why is this?

Amazon is unique in the sense that they get tremendous amounts of traffic during the holiday season. As a result, they have to gear up each year in the fall and stack servers upon servers to handle the uptick in traffic. So while companies such as Google may get more traffic year-round, Amazon gets more in a short, quantified season. They need a tremendous amount of storage room to accommodate all of the extra customers during the holidays, but this also presents a unique opportunity.

While Google or Facebook only buy the server space they need (as per logic), Amazon needs more room for only a small portion of the year. As a result, they have all this extra server space which can be applied to the cloud. After the holiday season, it becomes useless to them, and they can sell this infrastructure at a steep discount. This is why AWS dominates the cloud world, because they can offer more streamlined and efficient cloud-based storage at a tremendous discount to the field. It is truly amazing that Amazon essentially owns almost half the cloud, and the average investor doesn’t even know it!

But this is only a microcosm of the totality that is Amazon. From purchasing Whole Foods to their core business to Amazon Web Services, they are the true manifestation of multifariousness. And for that reason as an investor in their stock, the upside potential is tremendous and on the downside, if an apocalyptic situation happens, they are diverse enough to endure blows.

Wise investors will say there is no such thing as tremendous upside without exponential risk. I don’t know if I’ve been spoon-fed media that has fried my brain, but I can’t really see a downside from this mountain of cash I’m sitting on!

 

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  1. The beautiful thing about being so diversified is that they are good at so many things without monopolizing any one thing!

  2. A lot of people are wondering why the government hasn’t stepped in to keep Amazon from becoming a monopoly, but you are absolutely right; it is so diversified, it can’t really be considered a monopoly. Thank you for bringing this “ETF” to my attention.

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