I would like to introduce a meme before the sell side or buy side catches on. As you know AMZN was up 100% this year as Bezos revealed the AWS business to the world. The meme is this: AWS growth is unsustainable. Not only is it unsustainable I predict that the sell side forward revenue growth rate for AWS will go to zero or negative by Christmas next year. It has come to my attention that 50% of AWS growth comes from start ups and my guess is that the majority of those dollars are Unicorns. AMZN has been an indirect beneficiary of QE largess. The Fed’s easy money created a bubble in VC funded start ups. That funding peaked this year and is now in decline as the Unicorn bubble is bursting. I expect this bubble to unravel fast as we are in the part of the cycle where the capital markets shut down for companies burning cash.
This set up reminds me of the easy money days of 1998-2000. Then the investment world thought it was a good idea to fund a multitude of new telephone companies (CLECs). These companies all rushed out and bought telecom equipment and helped to propel the stocks of Cisco, Nortel and Lucent. These arms merchants were the must own large cap stocks of 1999 and 2000. About 50% of their revenues came from the CLECs towards the end of the cycle. The CLECs went away when the capital markets shut down and with it the revenues for these arms merchants went the way of the Dodo bird.
The problem for Amazon is that the Fortune 500 are not putting large portions of their business on the cloud yet nor will they soon. Therefore there will be a big growth chasm that AMZN needs to cross. I suspect the $150 billion in market cap being assigned to AWS is not anticipating such a growth hiccup. Additionally, I question how profitable this whole business is in the first place but for now lets just focus on the fact that revenues in the AWS division will roll over this year. I am not short the stock but I will be stalking this and I predict my meme will come true and that AMZN will be one of the worst performing large cap growth stocks next year.If you enjoy the content at iBankCoin, please follow us on Twitter