Think Amazon Is Unstoppable? Read This First
Amazon Deep Dive Part II
Invert, Always Invert
If you hang around DualEdge long enough, you’ll hear us say it a lot. And no, it’s not just because we’re card-carrying Charlie Munger fanboys.
It’s because flipping your perspective—actively hunting down ideas that challenge your own beliefs—is absolutely critical for clear thinking (and avoiding facepalm-level mistakes).
Munger nailed it: being able to seriously consider the counterargument is a superpower.
Especially if you're trying to survive (and win) in investing.
We leaned on that mindset recently when we talked about Reverse DCF.
Quick refresher: instead of guessing what a stock should be worth, you start with the current price and work backwards. You figure out what kind of growth the market’s already assuming—and ask, “Wait a minute, does that actually make sense?”
It’s a great BS detector—for the market and for yourself.
But Reverse DCF isn’t the only way to invert your thinking.
Today, we’re going to take it a step further.
We’re going to build an anti-thesis for Amazon—the company we covered last week in the first part of our Deep Dive series.
Part I was a hype reel: everything that makes Amazon a monster.
Part II? We’re flipping it over. We’re talking risk, challenges, vulnerabilities—the not-so-sexy stuff that every smart investor needs to think about.
Let’s get after it.
Operational Headaches
Razor thin margins
Amazon is not your classic high-margin tech darling.
Forget Nvidia. Forget Meta. Amazon’s core retail business has lived on razor-thin margins for years.
And that’s not an accident.
Amazon chooses this path—low prices, maximum convenience, endless selection. That’s the brand. But the trade-off? Margins that are wafer-thin across most of their business lines—and sometimes even straight-up operating losses.
Which means the whole empire leans heavily (very heavily) on AWS—the cloud business that actually prints real money.
Let’s break it down:
Total Amazon revenue in 2024: $638 billion
AWS revenue: $108 billion (~16% of the total)
AWS operating income: $39.8 billion (~58% of total operating profit)
One division carrying more than half the profits.
That’s... a lot of eggs in one basket.
Now, we’re big believers in growth—but only when it creates value.
That means: investments need to beat the cost of capital. Otherwise, it's just a vanity project.
And with Amazon? Honestly? That’s still an open question.
They've spent years prioritizing scale over profits: plowing cash into warehouses, logistics, R&D, streaming, groceries, healthcare—you name it—while squeezing every last penny to keep prices low.
Investors were fine with it for a long time, banking on ultimate market dominance.
But now? The question’s getting louder:
Does Amazon actually have the pricing power to cash in someday?
It’s not a rhetorical question. It's a very real risk.
Macro Uncertainty
Amazon is also heavily exposed to the broader economy.
At the end of the day, it’s still a retail-driven business. And that means it’s vulnerable to macro risks.
If tariffs, inflation, or political chaos (say, a Trump-induced recession) slam consumer confidence, Amazon’s sales could feel the heat fast.
We’re already seeing some of this. In 2023, Amazon noticed shoppers becoming a lot more price-sensitive—hunting for deals, delaying purchases—leading to slower online sales growth.
In response, Amazon tightened its belt: cutting costs and raising Prime membership fees in the U.S. and Europe to offset inflation-driven spikes in labor and delivery costs.
But here’s the dilemma:
In an inflationary world, Amazon’s costs balloon—think salaries for 1.5 million employees, transportation, and warehouse expenses—while their ability to pass those costs onto consumers is capped by fierce competition.
Net result? Inflation squeezes margins hard.
It’s not just retail either.
On the B2B side, if companies cut IT spending during a downturn, AWS growth could slow sharply too. In tough times, businesses tend to slash variable expenses first—and cloud services and digital ads (two of Amazon’s biggest profit drivers) are often on the chopping block.
Bottom line: a full-blown recession could hit Amazon from both sides—consumer and enterprise.
Sure, COVID was an outlier where Amazon benefited from disruption. But in a “normal” recession? Amazon is vulnerable, no question.
Those were the operational vulnerabilities—the cracks hiding behind the growth narrative. But there’s another major challenge we need to talk about. One that hits investors directly where it hurts: the sheer complexity of Amazon’s business model.
Because if you think evaluating a simple retail company is tough, try wrapping your head around a sprawling, ever-evolving empire that touches everything from groceries to cloud computing to healthcare.
Challenging Your Competency
Here’s the biggest challenge with Amazon—and honestly, it doesn’t get enough attention:
It’s almost impossible to truly understand this company.
Amazon isn’t "a business" anymore.
It’s a full-blown conglomerate.
Retail. Cloud. Ads. Devices. Healthcare. Entertainment. Satellites. AI. Logistics. Payments. Grocery. You name it, they’re in it.
And that complexity—combined with frustratingly low transparency—makes it incredibly difficult for investors to truly know what’s going on under the hood.
Lack of Transparency
Amazon breaks down its financials into just a few broad segments: North America (retail), International (retail), and AWS (cloud).
You get some vague revenue categories like product sales and service sales—and a mysterious "Other" bucket where things like advertising revenues are tucked away.
That’s it.
No real visibility into the profitability of specific business lines. No detailed segmentation.
Wildly different businesses—high-margin advertising and low-margin first-party retail—are bundled together.
Without real transparency, it’s hard to tell which parts of Amazon are crushing it and which are quietly bleeding cash.
And it gets worse.
Amazon is constantly betting on bold, expensive moonshots: self-driving cars, healthcare, satellite internet (Project Kuiper), Alexa devices, entertainment content, you name it.
But the financial results of these bets are completely buried.
We have no clear picture of what’s working—or how much shareholder value might be quietly evaporating.
This lack of clarity makes it a nightmare to model Amazon’s future cash flows accurately.
Is AWS subsidizing endless, unprofitable experiments? It’s possible. No one knows for sure.
Cross-subsidization risks are real. And they can destroy shareholder value if new initiatives never pay off.
How Do You Value This Thing?
It gets even trickier.
To truly value Amazon, you need expertise across multiple industries: retail, cloud computing, digital ads, logistics, healthcare, entertainment—you name it.
Most investors—and even most professional analysts—don’t have that breadth of deep knowledge.
Predicting trends in one sector is hard enough.
Predicting them across six or seven sectors at once? Good luck.
Traditional valuation models break down here too.
Amazon’s story is messy, dynamic, and doesn’t fit neatly into a spreadsheet.
As one analyst put it:
“Amazon isn’t just a company—it’s a moving target that even seasoned investors struggle to fully understand.”
Closing Remarks
If there’s one major takeaway from this anti-thesis, it’s this:
Amazon’s razor-thin margins are a real vulnerability—especially in a world full of macro uncertainty.
Thin margins mean little protection against external shocks—whether that’s inflation, rising wages, supply chain chaos, or geopolitical instability.
And if AWS growth stalls? Amazon’s profitability could get hit hard.
The core retail business and the newer bets—like streaming, devices, and healthcare—just aren’t profitable enough (yet) to pick up the slack.
And then there’s the analytical headache.
Amazon is insanely difficult to fully understand and value—both because of its massive size and its frustrating lack of transparency.
In short: investing in Amazon isn’t just about believing in the company.
It’s about navigating a fog of complexity—and being ready for surprises, good or bad.
📢 What do you think? Are Amazon’s risks understated—or are we overthinking it? Drop your thoughts in the comments—I’d love to hear your take.
🔔 Next week, we’re tackling the next challenge in our Amazon Deep Dive. Subscribe now so you don’t miss it.
Please note: This article includes a disclaimer regarding investment advice.
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