The Lex Newsletter: Amazon is a $2tn stock

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Dear reader, 

Here in the US, a story about the way in which Amazon uses human workers to check artificial intelligence systems in its stores is being used to claim that AI is just the equivalent of three toddlers in a trenchcoat. It is not true. But this is what happens when hype meets hysteria.  

There are not thousands of Indian workers faking Amazon’s AI. But teams of people are employed to watch videos and review transactions. This is true of much automated work. If you’re interested, the FT’s AI editor, Madhumita Murgia, wrote a great story about the work being done by human data labellers back in 2019. 

The real story about Amazon’s attempt to revolutionise shops is more complicated. In 2018, the company launched a new kind of technology called Just Walk Out that allowed customers to pick up goods and walk out of a grocery store without using a checkout. The system of videos and scanners was hailed as the future of physical shopping and there were predictions that not only would Amazon put it in all of its stores but it would sell it to everyone else’s shops too.

That did not happen. While some third parties use the tech, Amazon is now removing it from some of its larger stores in the US — though it will remain in smaller stores. 

But a pullback on a certain type of technology does not change the bullish case for Amazon. Physical stores accounted for just 3 per cent of revenue in the last quarter. Rethinking the use of expensive Just Walk Out tech is part of a broad focus on costs that has found favour in markets. Amazon’s share price is up almost 90 per cent in the past 12 months to $189. This means that its market cap is closing in on $2tn for the first time. Still, on a price-to-operating-cash-flow multiple, Amazon is not trading at a record high. That suggests room to grow. At Bank of America, analyst Justin Post has set a target of $204 per share.

Amazon is one of the tech companies that has opted to make significant cuts to its workforce since 2023. They may not make headlines like tech job losses, but headcount tweaks are also under way in other sectors. Consulting has been suggested as a sector up for the generative AI chopping block. But McKinsey’s sudden interest in cutting jobs cannot be blamed on AI. 

After an unusual round of job cuts last year, the strategy consultancy (or laboratory for knowledge creation, as it likes to call itself) has offered to pay some UK and US staff to leave. 

Lex points out that revenue growth is slowing across the sector. But this is not about AI. The work mix is changing. There is less high-level consulting work on offer. The Lex reader comments section offered plenty of sceptical analysis about the good that consultants do. But there is not much evidence that this work is being automated away just yet.

Perhaps the US start-up ecosystem will be next in line for what is euphemistically referred to as workforce rationalisation. Low interest rates helped to drive billions of dollars into risky tech start-ups in recent years — money that has since ebbed away. But many start-ups have refused to accept reality and raise money at low valuations. That leaves venture capital with funds full of supposedly high-valued names. No wonder limited partners are wary of committing more money.

Perhaps someone needs to tell start-ups that the days of ultra-low-cost funding are over forever. Here comes JPMorgan Chase chief executive Jamie Dimon, predicting that rates might not be “higher for longer” but “higher forever”. His message may not be popular with everyone but it makes a lot of sense to us.

In Lex this week

• Spending on beauty lotions and potions is expected to fall this year but Spain’s Puig, the company behind brands such as Charlotte Tilbury and Paco Rabanne, could still pull off a successful initial public offering. At €10bn, it would have an enterprise value-to-ebitda multiple far below rivals such as L’Oréal. 

• In the battle for Chinese ecommerce, Alibaba is struggling to knock Temu from the top spot.

• Fix-and-flip private equity is coming around to the merits of buy and hold. 

What I’ve enjoyed this week 

• I’m very interested in different models for journalism and the media apocalypse that is taking place among titles that targeted a big digital audience. Under Shane Smith, Vice expanded into a new media empire. The Verge explores how it all came crashing down. 

• Newsletters have been touted as the possible successor of newspapers. But Substack, the best-known newsletter platform, seems more intent on becoming a social media platform. That is not good news for writers. The Wrap explains how Substack’s new features are weighing on subscription growth.

• For those in need of some perspective on what AI is and what it could be, Wired Magazine goes back in time to interview the eight Google employees credited with inventing modern AI. 

Have a great weekend,

Elaine Moore
Deputy head of Lex