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Our discussion started with a simple question. If Amazon posts a soft holiday quarter in retail but AWS turns in another strong period, what happens to the stock? This is the season that has historically defined Amazon’s growth narrative. Yet the company’s valuation today is anchored far more to AWS than to the retail empire that built the brand.
Lee reminded me that activist investors have been pushing hard for a separation of AWS from the rest of the company. Their argument is straightforward. AWS is a high-margin global cloud leader. E-commerce is a low-margin, capital-intensive logistics platform. Combining them creates a valuation that obscures the true economics of each business. A split would let investors choose their exposure instead of buying two industries packaged into one ticker.
The Case for Breaking the Company in Half
I agreed with Lee that Amazon is one of the rare mega-cap companies where a breakup might actually increase shareholder value. The strategic relationship between AWS and e-commerce has thinned dramatically over the years. What once looked like an integrated flywheel now resembles two separate enterprises with different customers, cost structures, and competitive threats.
AWS has become a cornerstone asset of the entire tech sector. E-commerce, by contrast, is increasingly pressured by competition, inflation-driven trade-down behavior, and rising last-mile costs. When the next earnings cycle arrives, strong cloud numbers may not fully offset a weak holiday season on the retail side.
The Underperformance Pressure
Lee also noted that Amazon has been the biggest laggard among the mega-cap tech stocks this year. That underperformance sharpens the need for strategic clarity. Amazon has grown into something far larger than its original retail roots. It has built a streaming service, a live sports franchise, and a fast-expanding advertising business. Yet none of that changes the fact that the company’s market cap leans heavily on AWS’s profitability and growth rate.
Looking Ahead to 2025
We closed by observing that Amazon must execute a clean holiday season to regain momentum. Investors will be watching to see whether retail can stabilize or whether AWS alone will carry the valuation narrative once again. If the gap widens further, the breakup conversation may turn from activist suggestion to shareholder expectation.
Transcript:
[00:00:00] Doug McIntyre: So here’s a question for you, with the holidays coming up, and this is a question about how do investors think about companies? Amazon’s e-commerce business is doing very well based on the last quarter.
[00:00:12] Doug McIntyre: Many investors believe that an Amazon’s entire market cap should be based on Amazon Web Services AWS, and that the e-commerce business is just sort of a okay business that you get thrown in.
[00:00:24] Lee Jackson: Now the margins are thin, but yeah, I mean, it’s, the go-to deal.
[00:00:29] Doug McIntyre: So the question is if Amazon has a tough holiday period, which they could. And those numbers come out, but AWS has very strong numbers the next time they announce. What happens, how important is e-commerce to the. Story about why you buy or sell, Amazon stock?
[00:00:51] Lee Jackson: Well, I, I think that’s a really good point. And you know, there’s been activist investors that have said, Hey, look, spin AWS out into a totally separate entity. You know? ’cause then you can get the real picture of what the balance of the amazon business does, and I think it would actually be smart to do that.
[00:01:10] Lee Jackson: But you know, it, it kind of serves as, as the buffer for the company because it, it is such a cash cow for ’em.
[00:01:20] Doug McIntyre: Well, Amazon is one of the few really mega companies that I can think where it might actually make sense to break it in half. Not because the government wants you to break it in half, but because you’ve got two businesses, the relationship of which to one another has gotten thinner and thinner and thinner over time.
[00:01:38] Doug McIntyre: Yeah, absolutely.
[00:01:39] Doug McIntyre: It also allows an investor, if they were to do that, to trade an industry and not a company that basically has a huge foot in two industries.
[00:01:48] Lee Jackson: Yeah. Yeah. Well, I mean, Amazon has had a rough go of it this last year, and I, if, if I’m not mistaken, it’s the. Biggest underperformer of the Mag Sevens, I think it may be, if I’m not mistaken.
[00:02:01] Lee Jackson: And yeah, I mean, it’s been a grim run for ’em. But, they have properties. I mean, they, they’ve built Amazon out to the point now where there’s, there’s more, they almost have a Netflix sort of business and they have, you know, Amazon Prime, which has football every Thursday. So I mean, that part of their business is good and they’ve expanded it and, and, and Bezos started a lot of this before he hauled ass.
[00:02:26] Lee Jackson: But you know, what they’ve done I think makes sense to expand. But again, the retail business, the, I mean, remember how it started, that was books and just little things, items like that, and they in the garage and all that. But it’s gonna be interesting to see how they forge ahead next year because, you know, they’ve been kind of under the gun this year and have a lot of ground to make up.
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