Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Amazon Is Winning the Cloud Price War
Transcript
- Lucas: So the S&P 500 just hit 7,510 — another all-time high on May twenty-sixth, 2026. The NASDAQ is up nearly three percent in the last five days. But if you look under the hood, the real story might be which mega-caps are driving it and which are getting left behind. Luna: Yeah, I noticed Apple is up three point seven percent in the same period, but Microsoft is basically flat. And NVIDIA is actually down over three percent. That feels like a rotation within tech. Lucas: Exactly. And I think the connective tissue here is cloud computing and AI infrastructure spending. Because when you look at the cloud wars right now, Amazon Web Services is doing something really interesting. They've been cutting prices aggressively on compute and storage — some instances down by thirty to forty percent year-over-year. Luna: And they can do that because their scale is just enormous. AWS has something like a third of the cloud market. Azure is second at maybe twenty-three percent, and Google Cloud is around eleven. Lucas: Right. So the question is: can Microsoft and Google match those price cuts without crushing their margins? Because Amazon has shown they're willing to play the long game — they'll sacrifice short-term margin to lock in customers for years. And with AI workloads exploding, the switching costs are real. Luna: I want to dig into that — the AI piece. Because a lot of the AI model training and inference is happening on NVIDIA chips, but it's running inside these cloud platforms. So if you're a startup building on AI, you're basically choosing your cloud provider and your chip architecture at the same time. Lucas: That's the key insight. Amazon has been building their own AI chips — Trainium for training, Inferentia for inference. They're not trying to beat NVIDIA on raw performance, but they're offering a bundled solution that's cheaper if you stay inside AWS. And they just announced a new Trainium-three chip that they claim cuts training costs by fifty percent versus comparable NVIDIA instances. Luna: So it's a land-grab strategy. Lower prices to win the workload, then lock in the customer with proprietary hardware and software integrations. Lucas: Exactly. And Microsoft is doing something similar with their Maia chips, but they're behind. Google has their TPUs — tensor processing units — and they're actually quite good, but they haven't gained the same enterprise trust. So Amazon is in a position where they can lead on price and still grow revenue because the market itself is growing at maybe twenty percent annually. Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: It really does make a difference. We keep the show independent, zero sponsor reads, no ads. So if you've gotten something out of it, that link is a simple way to say thanks. Luna: And it keeps us going. Alright — back to the cloud war. So what's the bull case for Amazon stock here? Lucas: The bull case is that AWS margins have already compressed, but as the price cuts bring in more volume, they can actually expand over time. Amazon's overall operating margin last quarter was about ten percent, but AWS alone was closer to thirty percent. If they can grow AWS revenue at twenty percent while margins stabilize, that's a lot of operating leverage. Luna: And the rest of Amazon — retail, advertising, Prime — those are also generating cash. So it's not entirely dependent on cloud. Lucas: No, but the cloud is the profit engine. And I think the market is starting to recognize that Amazon is winning the price war in a way that's sustainable. Look at the stock — Amazon is up one point six percent in the last five days, but that's actually modest compared to the NASDAQ. I think there's room for re-rating if they keep taking share. Luna: Let's talk about the other side — what about Microsoft? They've got the OpenAI relationship, they've got Copilot everywhere. Why aren't they gaining more ground? Lucas: Microsoft's cloud revenue is still growing — Azure was up something like thirty percent last quarter — but the margins are thinner because they're spending a ton on data centers and on their OpenAI partnership. They're also not as aggressive on price cuts. They're bundling AI features into Office and Windows to drive adoption, but pure compute pricing is still higher than AWS. Luna: So Microsoft is playing a different game — more enterprise software, less pure infrastructure. But that might make them more vulnerable if AWS keeps taking share in the AI training layer. Lucas: Exactly. And Google Cloud is an interesting wildcard — they've got the TPU advantage, and they're investing heavily in AI. But they're still number three, and enterprise customers are slow to switch. Google's stock is actually down a hair this week, which tells you the market isn't convinced they're closing the gap. Luna: What about the broader market context? Small caps are crushing it — the Russell 2000 is up six point two percent in five days. That's way more than the S&P. Is that a sign that the rally is broadening? Lucas: I think so. When small caps outperform like that, it usually means investors are getting more confident in the economy. They're moving down the market-cap spectrum, looking for value. And you see it in sectors like financials — JPMorgan up almost four percent, Bank of America up nearly three. That's a healthy sign. Luna: But energy is getting hammered. Exxon is down over seven percent in five days, Chevron down five and a half. That's a big divergence. Lucas: Oil prices have been sliding — I think crude is down maybe eight percent this month on demand concerns. And that's weighing on the whole sector. But it's interesting because a year ago, energy was the place to be. Now it's tech and financials. Luna: So if I'm a stock picker, what's the takeaway here? Is Amazon the clear pick in cloud, or is there a value play? Lucas: I think Amazon is the quality pick — it's not cheap, trading at maybe thirty-five times earnings, but the growth is real and the competitive moat is widening. If you want a value play, look at some of the beaten-down names in energy or maybe even Microsoft on a dip. But the cloud price war is a long-term trend, and Amazon is winning it. I'd rather own the winner. Luna: And that's the kind of specific thesis we like on this show. One focused angle, one concrete takeaway. Lucas: Exactly. Next time, we'll look at whether the small-cap rally has legs or if it's just a rotation within a narrow market. For now, thanks for listening — and if you found this useful, you know where to find us. Luna: Buy me a coffee dot com slash fexingo. See you next time.