Closing Bell - Closing Bell Overtime: Exclusive Interview With Amazon CEO Andy Jassy On AI, Inflation, Competition With Temu & More 7/6/23

Episode Date: July 6, 2023

Averages closed lower again. Richard Bernstein Advisors’ Dan Suzuki and Vital Knowledge’s Adam Crisafulli break down the market action. Jon is in Seattle at Amazon HQ for an exclusive interview with CEO Andy Jassy covering AI, the consumer, inflation, supply chain and much more. Plus, previewing tomorrow’s important jobs report.

Well, I'll see you in red for the major averages today, though, off the lowest levels of the session. This is Treasury Yield Spike on Hotter Than Expected Data. That's the scorecard on Wall Street, but the action is just getting started. Welcome to a special edition of Closing Bell Overtime. I'm Morgan Brennan. John Ford is in Seattle. He's going to join us in just a moment for a can't-miss exclusive interview with the CEO of Amazon, Andy Jassy, covering everything from the consumer to the cloud and AI and so much more. But let's get straight to today's market action.

And there was action. Joining us now is Adam Crisafulli from Vital Knowledge and Dan Suzuki from Richard Bernstein Advisors. Good afternoon to you both. Dan, you're here on set with me. What we saw today, I mean, really the big story here was higher than expected data from ADP this morning. You also had ISM services showing an ongoing expansion and you saw a spike in treasury yields. Where do we go from here? Well, I don't think, I think it's probably an overreaction, to be honest.

I mean, I think there's nothing new. The labor market is tight and it's slowly softening, but not fast enough to bring down inflation pressures. So I think that, you know, I think what people are overreacting to probably is that they're assuming that this means that the Fed's got to be, you know, hiking a whole lot more. Now, there are probably a couple more hikes, but we're probably closer to the end than people think. Yeah. Adam, I want to get your thoughts on this because we did get that hawkish commentary from Lori Logan this morning. You had the two-year hitting the highest level in 16 years, the 10-year back above 4% today as well. It really does seem like the market has moved and moved very aggressively in recent weeks, or the bond market, to catch up to what the Fed has been saying for a while now. Yeah, I mean, we did have those two economic numbers which came in ahead of expectations

on the ADP and the services ISM. But I agree with your guess about the market overreacting and yield to the upside. You know, in particular, if you kind of dissect a lot of the details in the recent data we've seen, there is still this softening in underlying inflation. You saw that in the prices component of the services ISM. You saw it in the manufacturing ISM also going back to Monday. And then wages within the ADP survey continue to cool also. So you're almost in this kind of Goldilocks environment with economic data. We're having the inflation part cool, but the underlying growth is, if anything, firming a little bit. And so, you know, you saw a small tick higher in Fed tightening expectations by the end of the day.

I think the year-end funds rate forecast went up just about six basis points. So, you know, the market's at about another hike and a half, so about 30 to 35 basis points or so. So not a real dramatic shift in messaging around policy. And so we have the big labor report tomorrow, but I think much more important will be the CPI next week. I think inflation is really going to determine the Fed's next action, not so much the course of labor markets. So, Dan, what's an investor to do? We had such a strong rally in equities to start the year. It was very much powered by the biggest tech names that we talk about on a daily basis, including, by the way, Amazon. What would you be advising clients to be doing right now with their portfolios? Yeah, I think the most prudent

thing is to not chase momentum here. I know it's enticing. I know everybody has FOMO. But I think either way the economy goes, you know, it's either going to get better or it's going to get worse in either scenario. I don't think these are going to be the winners because, listen, if you get a classic rotation and recovery, what's going to happen? Well, people are going to realize that they can pay, you know, a third of the price, you

know, for companies that are going to benefit a whole lot more. So you buy cheap cyclicals. That's the classic rotation when things start to recover. But when things get worse, where are people going to go? They're going to jettison these expensive speculative names, and they'll go to the tried and true areas of defense like staples, utilities, and health care. So in either scenario, I don't think these guys went out. And they've had a tremendous run and i think you know the reality is the history of markets shows that the biggest risks are are where the in the most crowded expensive assets and that's clearly these these handful of stocks yeah adam and you've

talked about this this key technical level of 45 50 for the s&p we closed today at 44 11 there's been some debate uh on cnbc that that we were ripe for a pullback or some sort of correction here. Do you still think higher is the easier trajectory, at least in the near term? Yeah, I mean, look, but, you know, I do think that we have upside, more upside potential, but we're definitely getting to the upper end of what I think is going to be the ceiling, which works out to about a 19 times local on the 2024 EPS estimate. So, you know, those aren't really conservative parameters. And so you're talking about another 100 points or so of upside potential, 130 points from here. I do think you're going to see an intensification

of disinflationary forces going forward. That's a macro positive in the near term. But I'm definitely more neutral just given the rally that we've had and just given that stocks are more expensive than before. You know, I do think that, you know, like your prior guest said, I agree. Some of the less crowded, more out of favor groups can start to catch up in the performance on a year to day basis. So the equal weight S&P, energy, smaller caps banks, those types of groups that are still big underperformers, I think they have more room to catch up. OK, Dan Suzuki and Adam Christofoli, thanks for kicking off the hour with me.

Thanks for having me. All right. Well, we teased it. Now we're going to go there. We're going to send it over to John Forts at Amazon headquarters with Amazon CEO Andy Jassy. John. Morgan, thanks. I am here in Seattle at Amazon headquarters

with Andy Jassy, the CEO. Thanks for being with us here on Overtime, Andy. Thanks for having me. So tight labor market had investors that worked up today. We got the jobs report tomorrow and UPS. I mean, looks like there might be a strike because workers want more wages, better hours. What's the potential impact, say, of a UPS strike on Amazon, given that you've built up your own logistics capabilities over the last few years? Well, to your point, because we have built

a last mile transportation network roughly the size of UPS over the last couple of years, we're much less exposed to that than other companies. Most of our shipments go through our own last mile transportation network. So, in a way, it could be good for you if people have to rely on something that's a little bit more consistent and they're going through that. I don't think of it that way. I don't think you ever want to see conflict, and I think it's real people's lives. But just from an Amazon perspective, because we have our own last mile transportation network where most of the shipments run through it, we're not as exposed. So let's talk about Prime Day. It's next week.

One Prime Day or two this year? Two days. So Prime Day is July 11th and 12th. We're very excited about it. For us, Prime Day. Would it be like one event or two events? Because last year you had two events, right? There was the early Prime Day... Would it be like one event or two events? Because last year... No, it was one event. It was just two days. You had two events, right? There was the early Prime Day.

Well, we did one in July, and then we did one just before the beginning of the holidays. It was an early access sale for the holidays. Do you know if you're going to do that again, or is this the one and only? I don't think we've announced it yet, but it was very successful last year, and customers loved it as an early way to get a start on the holiday season. But Prime Day for us, which is annually in July, and this year is July 11th and 12th, is a great way for us to thank our Prime customers. And for Prime customers, it's an opportunity to have a broad array of products

with very deep discounts. And this year, we'll have millions of deals, the most we've ever had across every category you can imagine, whether it's consumer electronics or premium beauty products or home items or kitchen appliances or apparel or toys, everything you can imagine. And across, the deals are really broad. So if you look at, you can get up to half off on Peloton bikes or accessories or apparel related to Peloton or everyday kitchen items like from Keurig or from Vitamax or laptops from HP or Dell or Samsung or LG. Really, virtually everything you can imagine. And then it's also the time where we often provide incredible deals on our own devices,

whether it's our 43-inch Omni-Series TVs or our Echo and Alexa enabled devices or fire TVs or ring or blink security and camera systems or aero routers. I mean, really everything that you can imagine. This year for the first time, we have this program called Buy with Prime, which allowed other third party merchants off of Amazon to be able to offer Prime customers the ability to check out via Prime and they're going to do Prime Day deals as well. So customers even off of Amazon will have an extension of Prime Day. So it's just a great opportunity for customers to get a broad array of items on discount, and we're ready to giddy up.

Big driver of new Prime subscriptions. It is. What is the way that you measure success in a year like this when inflation's been pretty high, consumers under strain, a lot of them are trading down? What does success look like for this year's Prime Day? Well, you know, first and foremost, we want, I mean, if you look at what's happening with consumers right now, they're buying, but they're very conscious about prices. It's an uncertain economy. And so whereas in the past you had multiple variations of a

product and people might shade towards the higher price variations, you're seeing the opposite. People are trading down whenever they can, and they're quite interested in bargain hunting. And so it's why we've worked with our hundreds of thousands of selling partners to provide millions of deals in this prime day. So we want customers in an uncertain economy where they're very conscious about price, where they want to extend their dollar to be able to have a very broad assortment of items they can buy at deeply discounted prices. And so that's what we're hopeful they'll get in Prime Day and I think that's what they will. Speaking of price conscious consumers, I was looking at the Amazon

app today, already big Prime Day like stuff there, and then I was looking at the Amazon app today, already big Prime Day stuff. And then I was looking at the Whole Foods app and it just said, you know, Prime members saved. There wasn't any Prime Day stuff there. Your competitor Walmart is doing quite well right now on consumers who are looking for access to grocery, fresh grocery at a better price. You guys have Whole Foods. Why no Prime Day there? Is there a way to connect with that price-conscious consumer on food, too? Well, it's early. I mean, remember, Prime Day will start in another week or so, and so we have plenty of time there. But we have a very significant grocery business today, and some of it is non-raditional grocery. If you look at the non-temperature-controlled items where consumables and canned goods and pet food and beauty products, it's a very significant business.

But we also, in the physical space, we know that if we want to be able to serve more customers in the grocery space, we have to have a physical grocery presence. And if you look at Whole Foods, which really is the pioneer in the organic foods market, it's continuing to grow very well. It's on a very good profitability trajectory and customers love the service. And so we're continuing to expand it. You can bet that we're going to continue to be aggressive there on price as well, which is unusual relative to that category. And keep looking for it. I will keep looking for it. Shifting gears here, Treasury Secretary Janet Yellen just arrived today in China. I believe her people are saying that market access is one of the things that she's going to be working on. And this is happening

at the same time. I think this month you're shutting down access to buying new Kindle books in China. How would you describe Amazon's market access to China? Well, we haven't had a large retail business in China for a long time. And several years ago we narrowed that considerably. We have an AWS in our cloud computing business. There are Chinese customers who use AWS both outside of China and other AWS regions around the world as well as in China. And then we have a number of Western companies who are used to using AWS and want to use AWS everywhere they go who also want to use AWS in China. So we have probably more limited access to it than some other companies, but we still have some.

Is that something that it would benefit Amazon if Yellen, if this administration can get China to open up some market access to U.S. companies? Well, you know, I think the devil's always in the details with respect to which industry you're talking about, what the rules will be. Today, again, for the businesses in which we do a meaningful amount of business in China, we have access. What would be helpful is if the rules were more or less symmetric with respect to what U.S. companies are able to do in China with what

Chinese companies could do in the U.S.? Well, let's talk about that a bit. So one of the things the administration has floated is the idea that Chinese companies wouldn't have access to kind of AI-grade cloud computing resources through hyperscalers, through cloud providers like Amazon. Do you have a sense of how that would affect Amazon if Chinese companies couldn't access AI-scale computing on AWS? Well, look, the reality is that there are some very strong cloud providers who are Chinese cloud providers in China. So Chinese companies in China are going to have access to AI capabilities, whether they come from U.S. companies, European companies, or Chinese companies. But the administration is trying to particularly, it seems, block off access to high-performing

AI chips, like the top end from NVIDIA, for example, which U.S. companies can buy. And I guess they don't want an end around where, hey, if I'm a Chinese customer, I can't buy those chips directly, or my cloud provider in China can't buy those chips directly, but I can get on Amazon's cloud or Microsoft's cloud, et cetera, and get access that way. Is that how you would see it? Well, I see it a little bit differently, which is just if you're a company that's going to use cloud computing, the chip that you use is embedded in the compute that you use as part of the compute service.

And there are compute services in China from companies that are Chinese companies and American companies that are comparable. And so, I don't believe it's going to shut off access to sophisticated AI for China. Interesting. So then on the e-commerce side, I'm sure you've seen this site, Timu, right? And it's not the only one, but offering ridiculously cheap deals on things. And there's a move in Congress to say that this is unfair, that there's this sort of rule loophole, perhaps, that if you're shipping something directly from China worth less than $800 into the U.S., you don't pay tax. And that's part of what's helping these companies

like Timu to have really cheap access. Is that something that you think needs to change? Is that perhaps an Amazon competitor in China that's rising up here? Again, I don't really think of it that way. I mean, when you're talking about regulation, I think you always have to think about what is it that you're trying to regulate and why. And based on however I define the regulation, will I have unintended negative consequences? And so I think the thing you have to worry about if you're talking about applying a tariff to products coming in from China is what are you actually accomplishing and who might you hurt? You know, I think about it, you know, I see it in lots of marketplaces, including our own, where you've got Chinese sellers who used to, who are always manufacturing the products,

they used to sell to American or European retailers, they'd sell it wholesale, and then they would repackage it and charge more to consumers here in the U.S. Where now, where Chinese sellers have direct access to consumers, they're selling direct to consumers and at a lower price for consumers. And so you have to make sure that whatever regulation you put in place, you don't end up accidentally creating higher prices for U.S. consumers, particularly at a time where consumers are sensitive about price. So it seems like maybe you're saying even platforms like Amazon have third-party retailers

who are maybe using that access and then offering those prices to Amazon's customers. Yeah. Again, to me, on the regulation, you have to make sure you understand what you're trying to accomplish. And you could really hurt U.S. consumers at a time that's probably not a good time to increase people's prices. How has the supply chain evened out, if it has, over the past several quarters since that crunch that we were experiencing, particularly during the pandemic? And how close do you feel like you are to the kind of equilibrium that you wanted in

the logistics operation? You had a little bit of overcapacity a few quarters ago. Well, there are different issues. I would say on the supply chain side, it is, I wouldn't say it's completely back to normal, but it's in a much better state than it was a year or two ago. And you can see that in everybody's in stock levels. And as I said, you can find places when you go to physical stores, you can find places where you look on the shelves and you say there must be a problem with these types of products. But it is a lot better than it was before. And then I would say on the logistics side, I'd say one of the things that the team and I are most proud of right now is just the way that we have substantially improved the speed with which we're able to get products to our customers. And this year, we're shipping products faster to customers than we ever have before.

We expect 2023 to be the fastest shipping times for Prime customers we've ever had. And customers really care a lot about getting their products and their items and their shipments quickly. Still. Yeah. Oh, you know, I would tell you, I mean, there's two things that are really interesting about speed in retail. One is that we've tested so many different things over the years and had various conditions where over and over again, we learned that when we make a faster promise on a product detail page, customers convert at a higher rate. They really care about faster delivery. And then the other thing is it turns out...

So people aren't willing to trade down on speed. They'll trade down on the product, but if you were to offer them, and you do in some cases, hey, save a little bit by taking this a day later, they're like, eh, I'd rather have it sooner. It depends on the person. It's a multivariate decision for people,

but speed matters an incredible amount to people. You know, and it turns out that faster speeds equal lower costs for us when we have the right underlying infrastructure. So when we started moving more and more shipments to one day back in 2019, we didn't yet have that infrastructure in place. We were building at the same time that we were moving to one day. And then the pandemic hit and turned everything upside down. But we've spent the last year reevaluating every part of our fulfillment network and doing a bunch of redesigning. And we turned the U.S. network from a national network to a regional network. And we changed all our placement logic. And if you look at our local

in-stock so that the fulfillment center is closer to end users or ones that have everything they need. We're getting products to customers much faster than ever before. And faster delivery means customers are happier. It means lower cost for us because the transportation distances are shorter and it's better for the environment. So there's a lot of upside still in continuing to improve speed of delivery to customers. And I think we're not close to the law of diminution returns there yet. Interesting. And inventory turns are better. You know, the time that you have to hold that in a warehouse is just costing you money. And I guess if you deliver it faster, you don't have to worry about that. Well, I want to talk a lot more about

cloud and AI. We're going to take a quick break, but there's a question I always ask you about AWS, and your answer is always a little bit, I mean, it's kind of the same, but nuanced, different based on the time. So that's coming up. We're going to take a quick break. We'll be right back. Welcome back to Overtime. I am John Fort here in Seattle at Amazon headquarters with Andy Jassy, the CEO. This is a tradition with us now. I don't even know how many years it's been, probably eight or more. And I've tended to ask you just about every time we sit down, what is the possibility, the likelihood that you're going to spin out AWS from Amazon? I mean,

Lena Kahn would like it. John, when we're 80 and we get a drink together, you're going to be asking me the same question, whether or not it's relevant or not. But I don't have a new answer for you. We don't have any intention or plan to do so. So in the AI era, why in particular? Is there a different kind of benefit that you get from having the e-commerce business and the cloud business in the same structure? I mean, I know that the profits from cloud, from AWS, certainly help. What about the artificial intelligence angle? I don't think the artificial intelligence angle changes how you're structured as a company. Every single business unit inside of Amazon is working intensely and very broadly on generative AI.

In fact, in many ways, sharing what we're working on and what we're learning and ways that we can be more effective for customers and models is very useful across different departments inside of Amazon. Okay, so let's talk about AI because you guys haven't exactly been quiet about it because you've been talking about AI for a while, but your rivals, particularly Microsoft, Google, have been louder. So Adam Solipski is now heading AWS post you said, well, this is just the first three steps of an AI race, so don't pay too much attention to that. But you guys are the first movers in cloud, and you're still ahead. Is there the risk that because you're not the first mover here,

at least in this AI hype cycle, that you could get behind? Well, I mean, hype cycle is pretty different than substance cycle. And so, you know, to me, I think Adam's right that we're just a few steps into a marathon here. You know, to me, I see generative AI as one of the biggest technical transformations in our lifetimes, and I think it has the ability to transform virtually every customer experience that we know. I think most people are focused on the applications, things like ChatGPT brought everybody's awareness up, but I think of generative AI as having kind of three macro layers, and I think they're

all really big and important. At the bottom layer is the compute that all of the machine learning training and inference, which are the predictions from the models that are going to be run on. What matters in that compute is the chip in there. To date, there's really been one chip provider, which is the supply is more scarce and it's expensive. You're talking about NVIDIA. And it's why we've invested over the last few years in our own customized training chips

that we call Tranium and inference chips that we call Inferentia, which will have much better price performance than you'll find anywhere else. We're on the second versions of those chips, and we're quite optimistic that a lot of the machine learning training and inference will be done in AWS chips and compute. Are you benchmarking those versus NVIDIA? We're benchmarking versus everything that's out there. It's meaningfully better price performance, which is going to matter. Again, think about the scale of compute here involved in doing machine learning.

Then at that middle layer, it's really the foundational model on which these large language models, on which these applications are built. And I think there's going to really only be, in my opinion, six to eight of these really large foundational models. And they're going to take billions of dollars a year to train and many years to have the models be great. And most companies we speak with on the AWS side say, I don't want to spend billions of dollars on the model or years. What they really want is they want to take that foundational model and then they want to customize it with their own data without leaking any of that custom data into the generalized model. And then they want it with all the same platform capabilities and security capabilities they get in AWS. And that's why we announced Bedrock, which is really foundational models of the service, where we expose both our own large language models we've built at Amazon, which we call Titan, as well as third-party large language models like from Anthropic or Stability AI or AI21. And there'll be more over time. And so this is a game changer with respect to how fast a company can build a generative AI application on top of a large language model. So to clarify, Bedrock is your answer to OpenAI and what Google's doing with BARD and that?

Bedrock is that middle layer where it allows people to have a foundational model that they can build their applications on top of. That third layer, which I was about to get to, that top layer, is the application layer. And that's what ChatGPT or BART are examples of. We think another really big early generative AI application is a code assistant, where as a developer, I can type in a natural language, I want a video web hosting website, and the code gets automatically pulled up that they can implement. We have a service called Code Whisperer that allows you to do that. That's a huge game changer with respect to developer productivity.

And we have in every single one of our internal businesses at Amazon, all those teams are really reinventing their customer experiences using generative AI. So we're building a bunch of those applications, but the overwhelming majority of those generative AI applications will be built by other companies. And we're quite optimistic that people will build them on top of AWS. I think all three of those layers matter, and we have a giant investment in all three. So developer mindshare is important here, right? Because on top of bedrock, you're going to need by industry, key players, key technology providers to be building models that work specifically for customer service or that work for construction or that work in healthcare, for example.

What's Amazon's unique advantage in building out that developer ecosystem that's going to have those models available so the right applications can be built and enabled with that AI. Well, I think it really is applicable to all three of those layers. So if you're a company with the technical aptitude and will to want to build your own models and train your own models, what you're going to really care about is the compute associated with doing machine learning training and ultimately inference. The funny thing is today, because most models are still being trained, most of the expense is in machine learning training. But once the models graduate to production, almost all the expense is in the inference.

Think about Alexa. You only train Alexa periodically, but think about the billions of predictions that Alexa is spitting out every day. I think for those building their own models, they're going to care a lot about the compute and the chips. For those that basically want to take the models, not build them themselves, but actually build applications on top of them, they're going to care about that middle layer, which is something like Bedrock, which there really isn't an equivalent out there today like that.

And we have experience. If you think about, John, we talked at reInvent many years ago when we were launching SageMaker, which really makes, I'll call it non-generative AI much easier to do. It allows everyday developers to have access to it versus having to be an expert machine learning practitioner. That totally changed the game with respect to the ease with which you could do AI. And I think Bedrock's going to do the same thing for those trying to use large language models to build generative AI applications. And we're not done.

Remember, we tend not to be big hand wavers. We tend to talk about the things as we have them and as we're releasing them. Sometimes you wave the hands. Not that much. And so we have a lot more coming. We have a giant investment there. And so we have some capabilities that are unique today, but we also have some other things coming as well.

So at that base layer, though, you are in effect, not to reduce everything to a boxing match, but you are competing with NVIDIA in Tranium, in your inferencing chip, the pronunciation. Inferentia. Inferentia, I always screw that up. It's not easy to pronounce. Right?

Tranium and Inferentia. You are competing in the sense that you're saying our value here on these chips is going to be better, and you're going to want to be on our cloud because you're going to be able to build on top of that, right? I think that customers, you know, there is such a high appetite right now to do machine generative AI and large language model training and inference that people are going to use as much compute as you can give them. In fact, my prediction is that there's going to be real scarcity on the ability to have this compute. And so I think there will be several successful players

and successful winners there too. And by the way, we use NVIDIA for a number of things, and so I think customers will use a lot of different chips. But, you know, when you talk about these types of opportunities to transform your business and your customer experience and the amount of cost that's involved, if you listen to those who've trained large models, and we've trained a lot of large models, having compelling price performance like training

an Inferentia is a big deal. So we're talking a lot about chips. Let's go back to bringing China into the picture for a moment, because there's a lot of concern. A lot of these chips, these custom chip designs are being manufactured by TSMC in Taiwan, and there's a geopolitical shadow over Taiwan right now. How important is it to you to have domestic and other, say, Western chip fab capabilities so that you can get these key chips for that AI future made in a diversity of places? I think it's important. I think diversity of supply is incredibly important always. And what happens is everybody intellectually knows that, and then they kind of get lax on it, and everything's working, and they're getting

everything. And then there's some kind of crisis, and then you realize that you wished you had supply diversity. And so, look, we've just gone through a pretty significant supply crisis over the last few years and we should learn from it. TSMC and Samsung are certainly working to build up capability here in the U.S. Intel is working particularly hard at it. Not a lot of people betting that they're going to succeed. Is that an important effort? I think the more successful, capable, high-scale players we have, the better.

And, you know, I have, you know, I think well of Pat Gelslinger. I think well of Intel. They've been a very significant partner over the years for Amazon. And so I'm hopeful. So right now the economy has been choppy. The markets have been up very strongly in the first half. But is it still sort of hazy, what the conditions are going to be like in the second half, or has it gotten clearer? JOHN YANG, The Cook Political Report, I think it's pretty uncertain.

It's really, I mean, it's hard to know, and you probably know this better than me, John, because you talk to so many people about it every day, but people have diverging views on what's going to happen in the second half and what's going to happen in 2024. And so, you know, I think everybody is proceeding cautiously. There are certain parts of the world that haven't been as bad as everybody expected them to be, and there are other parts where you can just see that tentativeness. and so we'll have to see. Are you referring to Europe when you're saying not as bad as expected? Yeah. What are you seeing there? I think that I

think everybody planned for something worse in Europe and I think that it just didn't pan out that way and the energy crisis it wasn't as bad as everybody thought it was going to be and some of the government stepped in and helped. So I think we've seen what probably other folks have seen, too, is just we plan for worse there. So what has that made you shift what you expect for the rest of the year there? There is some pretty intense inflationary pressure, especially in the U.K., which is like geographically Europe, if not economically.

Well, I don't think any of us believe we're out of the woods with the economy. As I said, I think there's a lot of uncertainty, and I don't think anybody knows what the next several months are going to be like. And like everybody, we've got a plan, and we had a plan the last few years, too, and things change. So we're pretty, you know, we are being, we spent a lot of time as a company, we continue to spend time really looking hard at all our businesses and trying to be as lean as we can be on cost while making sure we preserve the key investments that we think can meaningfully

change customer experiences in the company long term. And I think so far we've done a pretty good job of that. Speaking of, there's some people saying that you're looking very closely at the costs associated with content in Prime Video. Put that into context for me. It costs a lot of money to make content. You guys have spent a lot, Lord of the Rings, some other shows. Are you going back and saying, show me why this stuff has to cost so much? I'm looking hard at the cost of every one of our businesses all the time. And I actually think good leadership teams do that. You know, we have a pretty significant number of bets that we're making, and they're long-term bets. But, you know, you always have to look at whether you're allocating the resource as efficiently as you possibly could, even when

you're making bets and you're pursuing them over a long period of time. To me, in the case of Prime Video, I'm very bullish on where we're headed. We continue to grow the number of people watching Prime Video content. The content continues to get better and better. Lord of the Rings had over 100 million viewers. Thursday Night Football had a great first year. Look at Jack Ryan and Reacher and Terminal List and Citadel.

If you haven't seen Jury Duty, you guys should all watch Jury Duty. It's very funny. But the content continues to get better and better. And then I look at more and more customers are joining Prime because of the Prime Video benefit. And then when they join... Because of the benefit, not because of the shipping. Because of the benefit.

More and more customers, particularly out of the United States, join because of the Prime Video benefit. And then when they join, they very often will end up shopping in our e-commerce business. So it really drives Prime. And then if you look at the marketplace part of the Prime Video business, it's also pretty compelling. So you can rent or buy anything on demand, virtually anything on demand. And then we have a channels program where third-party media providers ingest their content in Prime Video

and then can sell subscriptions to Prime members. And that has been a very successful business. And so that marketplace part of the business also, it's significant, it's gotten big, we like the economics, and while Prime Video is really good at driving our prime value for our consumer business, I also think it's going to have good standalone economics. I'm very bullish about our Prime Video business. Okay, we'll have to talk more about that. Now, I want to pivot last minute and talk Supreme Court, because last week, decision about racial preferences in higher education. You and I have talked about education in the past, community college efforts that Amazon

has, the efforts inside your warehouses to get access to education for that workforce. Post that decision, have you looked, are you looking at Amazon's policies as they regard diversity and as they regard education for any changes or no? Well, look, we will always abide by the law of the land, and the Supreme Court obviously made a decision. But I think if you think about what we do at Amazon across all the businesses, across how many hundreds of millions of customers that we serve, and the diversity across all those hundreds of millions of customers, if you want to do what we do and do it well, you must have a diverse workforce, so you won't build the right products. And so we have believed for a very long time that that's important. The team and I continue to passionately believe that, and we will keep working on it.

And you and I have talked about this a lot, and I think in the U.S. that we really underrate the educational crisis we have right now in the country. We are ranked 35 out of 50 developed countries in education. And if we don't believe that's going to impact our future, we're kidding ourselves. And there are a number of kids in lower socioeconomic parts, you know, areas of the country who don't get access to the same quality of education that people in more affluent neighborhoods do. And I think that's not right. I think we have to work together as a country to address that.

Okay. Now, finally, there are a lot of responsibilities, opportunities that come with being a CEO. And lately, one of them, a little bit of a surprise to me, but it's become prominent in tech, cage matches. Am I going to see you turning up, challenging anybody to a cage match? I wouldn't bet on that. But if you were to get into one, I might bet and probably bet on you because you have a strong track record and all kinds of. I don't know if you've seen me fight before, John. I haven't seen any major CEOs fight, but it looks like we might not say that this time next year.

Yeah, it's possible. It's certainly a lot of people talking about it. I said it finally, but I got to mark the moment. It's been two years that you've been in this seat as CEO. And very often, it happened to Steve Ballmer, right, when Bill Gates stepped out, right as Microsoft stock was hitting a peak. It seems to have happened to you too, looking back at 2021. Give me your sense of what's been the most challenging thing about these two years, and how does the stock price fit into that, if it does at all? Well, you know, I think that it's an incredible honor to be the CEO of Amazon. I grew up at the company. I've been here for 26 years, and I love Amazon, and I am so passionate, like so many of my teammates, about the mission of what we do.

To have a mission to make customers' lives easier and better every day and to relentlessly invent to do so. I mean, we're all customers of a lot of businesses. That's an inspiring mission. So I feel very lucky to do it. Every era that you lead, whether it's a team or a group or a business unit or a company, is different. And so I think the last couple of years, I don't think any of us predicted that we would have a global pandemic, you know, or that we would have the labor shortage we had or we would have the war in Ukraine or that we would have the economy. I mean, there are a lot of things that you didn't you wouldn't have predicted. So anything you thought a job might be go out the door pretty quickly, depending on the circumstances in which you're in. But, you know, we, like a lot of companies, we had to make a lot of hard decisions, and

there's been a lot of change. But I'll tell you, I mean, it's the thing that makes it easier at a place like Amazon is that the culture is so strong, and it is so strong about knowing that what matters most is what customers care about, and then building all your strategies and tactics backwards from there. And that has been really our compass throughout this. And when I look at what's happening in the business, I look at two simple facts. In our two biggest businesses, in our retail business, we have about 1% of the global retail market segment share, and 85% of it lives in physical stores still. And we still have about a $470 billion business in retail. And in AWS, we have an $85 billion revenue run rate business,

and 90 plus percent of the global IT spend is on premises. So if you believe that the equations in those two businesses are going to flip from physical to online or on premises to the cloud, which I do, we have a lot of growth in front of us if we continue to provide the best customer experience. By the way, that takes a lot of work. And we have about three to five years of roadmap items to continue on that path. But we have a lot of growth in front of us. And that doesn't include all the new investments and businesses that we're working on. So I am incredibly optimistic about what lies ahead for customers and for our company. Well, the way I see it, that means there's a lot more conversations for us to have about this big business that you're growing and have had a big part in growing to this size.

Andy, thanks for having me here at Amazon headquarters. Thanks, John. Morgan, back to you. John, great stuff. Thank you for bringing that to us. The CEO of Amazon, Andy Jassy, with John Ford in Seattle. Well, joining us now to break down what we just heard from that extended interview, which covered so much, our own Deirdre Bosa, Courtney Reagan, and Mike Santoli. Guys, a lot to break down what we just heard from that extended interview, which covered so much. Our own Deirdre Bosa, Courtney Reagan and Mike Santoli. Guys, a lot to break down here.

Deirdre, you've been covering this company for a number of years now. I'll start with you. What were some of the highlights? So much to dig into. Let me just start with that. From their own chip ambitions to cloud to grocery. Something that stuck out to me, though, was closer to the end of the conversation, Andy Jassy, John asked him about Prime Video

and said, you know, there was these reports that you're taking a hard look, and Andy said, you know, we're looking a hard look, we're taking a hard look at everything every day. We know that content creation in the era of streaming is very, very expensive. So when the story came out and people started talking about it this week,

we thought, well, Amazon, pull back. We know that they're trying to cut costs. And he said very specifically, more and more customers are joining Prime because of the Prime Video benefit. He says it's driving a lot of the Prime value for the consumer business. And he even said that he believes eventually

it will have good standalone economics. So he sort of gave this fully-hearted, no-holds holds back endorsement of Prime Video. It doesn't seem like they're going to be relaxing on this space at all. He pointed to Thursday Night Football. He pointed to Citadel, Lord of the Rings. So I think that's really interesting because, Morgan, Prime Video has been floated as potentially a fourth pillar for Amazon. These are Amazon's big businesses. The first three are e-commerce, cloud and Prime. There were some thoughts that maybe Amazon Studio could be the fourth one. It's not out of the running, in my opinion, after his comments.

Yeah. And he certainly talked about the fact that he likes the economics of that business, even as a standalone business, to your point. Courtney, a lot of commentary about retail as well and the role that logistics and their in-house transportation network that they've spent so much money building out over the years has played in that. This idea that faster delivery actually equals a better cost structure for them and more realization, I think, of profits as long as they have the infrastructure in place, that got my attention. Yeah, there was a lot of conversation there about retail, certainly, Morgan, and offshoots therein, to your point about the logistics. And there was the point about the UPS striker and strikes and Andy Jassy saying,

well, actually, we're not as affected by that because of this retail distribution center, retail distribution network that we have built out. We're moving closer to the customer, which not only means we get them products faster, but it's also less expensive and we're more insulated from things like this. He did say that speed still really, really matters to customers, and that's still part of that value proposition of the Prime membership. And then to kind of integrate what Deirdre was saying there about the Prime video being a main driver for Prime subscriber signups, that caught my attention as we're just ahead of Prime Day, of course, happening next week, which at least when it started seemed to be having a goal of trying to get more Prime

members signed up. But many people sort of feel like we might be at a saturation point right now. And really now the goal is about getting Prime members to spend more or perhaps to use that video to get them to engage more part of that flywheel effect that Amazon always talks about. Yeah. He also teased that maybe there's going to be some more movement on the Whole Foods front as well towards the top of that conversation. Mike, John, just ending that interview, looking at the two-year tenure of Jassy in the CEO position, I mean, the stock is down 26, 27 percent over that time period, but it's had a very strong rally since the start of the year, more than 50 percent, really talking about the fact that he sees a lot more growth with all the investments that have been made. Yeah, for sure, Morgan. There's a lot of catch up action that Amazon has done,

although you really have to go back about six years to get to a place where Amazon is not underperforming the Nasdaq 100. So if you think about its massive gains during the pandemic years, 2020, 2021, pretty much all that outperformance is gone. I feel like Wall Street has a bit of fatigue, not with necessarily Amazon's execution of the businesses, but with an uncertainty about margins and whether, in fact, they can see some kind of sustainable efficiency moves to get the retail side of the business to a certain level of profitability. If you look at free cash flow yield, that's one way to value this company. It's pretty low, meaning the stock's much more expensive than it has been on average over the last 15 years. And stock in the last three years has really traded with the cloud software sector, the pure cloud software sector. So it implies Wall Street is mostly implying that the value of the overall company much more swings with AWS.

And what Wall Street's really eager to hear is that there is an upward inflection in the growth rate of AWS. Some people, some analysts have been making that case that that's underway. And that certainly is probably part of what's helping Amazon stock this year. And also, if it can catch a little bit of that breeze that's running through the AI-related sectors, I think that would be another thing that could add to its catch-up. But he had a tough entry point when it comes to where the stock was sitting when he took that job, as John implied. Yeah. And of course, John, as is now in your tradition, asking about plans to spin out AWS. And he said, no, no plans to spin out AWS. Deirdre, the role that AI is going to play in all of this, they got pretty granular with that.

And he did outline three macro layers and really talked about the fact that this is going to take many billions of dollars of investment and a long time to see the full promise of generative AI be realized. Yeah, he was very technical on this front. And I guess that is what some investors have sort of criticized Amazon for. It doesn't have these sort of flashy consumer products like a bar, like a chat GPT. Instead, Amazon is focused on providing companies that it serves in terms of cloud with the tools to utilize generative AI, whether that be large language models that are open or closed.

They're going to give access and options to these different companies. So yeah, it's an interesting take, but it hasn't really captured the zeitgeist in the same way. I'm not sure that Jassy did that right here, talked about Bedrock, which is that middle layer. But again, I mean, he can talk about that,

but again, it's harder for the consumer to understand and touch. You talked about chips as well, and they're doing some really interesting things on that side. But they don't have kind of that killer app in the way that Microsoft and Google does. Yeah, and of course, they talked a lot about China, too, including where chip manufacturing and some of the tensions between the U.S. and China regarding things like cloud services are concerned as well. It did sound like from the conversation, especially as they do develop their own chips, that he seems less concerned, perhaps, or maybe I should say adding caution, giving a voice or a message of caution to regulators about how they think about

some of these regulations moving forward. I picked up on that, too. It was interesting, his comments on China. He could have used this as an opportunity to say, you know, we're more secure. The Amazon cloud has certain protections in place, et cetera. But he said that there were some very strong cloud providers that were Chinese. And he also sort of implied that they're capable of doing the same AI workloads as the American hyperscalers, Amazon, Microsoft and Google. And I wonder if that was a little bit strategic, Morgan, because they do have a very large business in China. We know that the Biden administration is looking at putting some more restrictions. And going back to Mike's point, AWS is the profit engine of the company. Investors

want to see sort of growth pick up again. It's been decelerating over the past few quarters. So China is going to be really important there. So I wonder if he was being cautious here because it could ultimately hurt their business if regulators do put more restrictions on Chinese companies' capability or access to Amazon Cloud. Yeah, and Morgan, it's funny that Deirdre brings that up. I also was sort of picking up this undertone of sending messages possibly about regulation. When John was asking about Shein and Timu and he said, oh, I think we need to be careful with regulations

and we need to figure out what the intent is before you put that in. And obviously they are competitors for Amazon, but perhaps again, sending a message of less regulation is better for everyone and the consumer. Be careful before you do that, which I found as an interesting undertone. Yeah, Mike, it's interesting because after hours, Amazon stock is flat, but on heavy volume. And we had Dan Ives on the show yesterday. And one of the things he talked about going back to the point you just made about AI is that it really is a situation where investors want to hear more. They want to see more where AI efforts and investments are underway at Amazon versus a Microsoft or an Alphabet. How granular do you think he got

versus what we've heard in the past? Is this enough for investors to react in terms of the stock moving forward now? Yeah, not enough for investors to really have the elevator pitch for why Amazon is a real highly leveraged AI play. So I think that maybe that's a realistic approach. And, you know, AI through a lot of the technology industry is viewed as something more of, you know, this it's a process. It's another version of big data. It's an iteration of what we've been doing and making software smarter and faster. And it's going to work its way through our products. It's going to be a productivity gainer and things like that. So that seems to be the Amazon message, as opposed to saying, here's our flashy, you know, consumer product or direct to business product that we're going to, you know, monetize and give a brand name to.

So it's a tougher, I guess, a tougher read. And just the bigger picture is it gets kind of lost within the mass that is Amazon. It's a half a trillion dollar revenue business. Most of the revenue, you know, going to the e-commerce side, not in a big profit margin. It just seems a slightly more cumbersome story. And by the way, you know, the comment he made about, hey, there's a lot of good cloud service providers in China that have the AI capabilities. It seemed to me he was saying, you know, you're not denying AI capacity to Chinese businesses if you forbid us from participating. You know, they're going to get it anyway. So you're just cutting off your nose to spite your face if the U.S. players can't be one of the providers. All right. We're going to leave the conversation there.

Mike Santoli, Courtney Reagan and Deirdre Bosa. Thank you, Mike. We're going to see you again in a moment. All right. Don't miss tomorrow's special edition of Tech Check as John Ford interviews more top Amazon executives. That's tomorrow at 6 p.m. Eastern. Some breaking news in the meantime, though, the FDA has just announced the Lekembe that Lekembe, that Lekembe, the, okay, nevermind. We're going to come back to that. Tomorrow is June jobs report. That's going to be a major market mover, especially after the hot ADP number that we got today that spooked investors. Find out what that data could mean for stocks and for the Fed when Overtime returns. Welcome back to Overtime. Levi Strauss beat earnings estimates by a penny as revenues were in line with expectations. But take a look at the stock.

It's tumbling. It's down almost 7% right now after the apparel maker, the blue jeans maker, slashed its full year outlook. Executives told CNBC.com that they anticipate continued softness in the U.S., particularly in the wholesale business. Another headwind, price cuts on half a dozen price-sensitive items will eat into profit margins as well. Well, we've got some breaking news. We just hinted at it before, too. The FDA has announced that Lekembe, the Alzheimer's treatment drug from Biogen and Esai, has been fully approved. Today's approval will expand access to the drug to Medicare patients. Biogen stock has been halted for the pending news and Isai trades on the

Japanese market. Meantime, tomorrow's June jobs report may be even more closely watched than usual following this morning's huge ADP print. Mike Santoli is back with us to discuss what to expect. Mike, I mean, for I don't even know how many months now the street has gotten the number wrong and has been too, too cautious or too, I guess, conservative, I should say, in terms of how many jobs added. Is the expectation we could see the same tomorrow? Well, I think the ADP number absolutely got people leaning in that direction, whether it's the perfect, you know, confounding wrong way move to say now everyone expects a huge beat and we're going to get some moderation. Who knows? I know a lot of the economists on Wall Street who have formal forecasts did not adjust their outlook for tomorrow based on what happened in the ADP number. It's been a very loose connection with the actual figure. But bigger picture, the bond market reacted today to the ADP number, to the very strong ISM services print as

well. So it shows you that we're now primed to try to prepare for a slightly hotter economy than anticipated. The Fed's getting priced for another hike in July. That seems to be digested OK. And the stock market seems to be willing to make its peace with yields at this level because they're coming from better economic growth as opposed to an upside surprise to inflation. But it seems like a pretty delicate balance that we're in right now going into the actual report. The fact that you did see yields tick higher, does that does that speak to why the Russell 2000 was down 1.6 percent today? You're seeing small caps underperform. Yeah, it's a pretty good part of it. Also, bank stocks were lower. So a general sense out there that, you know,

tightening financial conditions or the threat of further tightening of financial conditions that has hit those areas also just did hit cyclicals more often. Maybe yields could pinch the real economy as well at certain levels. All right. Mike Santoli, thanks for joining me. All the major averages finishing the day lower. And of course, we will have more from that amazing interview with Amazon CEO Andy Jassy tomorrow. That's going to do it for us here at Overtime. Fast money begins right now.