Key Points
Amazon’s robots and chip businesses are underappreciated, while its internet satellite business could be a new big growth driver.
Alphabet is quietly looking to build upon its successful Tensor Processing Units (TPUs), allowing customers to deploy them directly.
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Anytime there is a war, it is unfortunate and tragic, as it affects real people’s lives. When it comes to the market, meanwhile, stocks often get whipsawed around based on the latest headlines of how the conflict is progressing and signs of when it may end.
However, things don’t just come to a complete stop when a war is raging, and amid the Iran war, some companies have quietly continued to build upon their advantages, which could prove to be long-term catalysts.
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Let’s look at two companies that are quietly continuing to push their advantages.
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Amazon: A behind-the-scenes winner
There aren’t many companies that have been positioning themselves for the future better than Amazon (NASDAQ: AMZN). Much of this has been done quietly behind the scenes, which is perhaps why the stock has underperformed over the past several years. But make no mistake: Amazon is setting itself up to be a long-term winner.
One area where Amazon has not gotten enough credit is its robotics division. Amazon is the largest maker and operator of robots in the world, but because it uses these robots internally and doesn’t generate revenue from them, this business often gets overlooked. However, Amazon’s robots are driving huge operating efficiencies in its e-commerce business and powering strong profit growth.
The same holds true for Amazon’s cloud computing division, where its chip business also often gets overlooked. Amazon makes both custom artificial intelligence (AI) accelerators and central processing units (CPUs). While this is about a $20 billion run-rate business, it would be closer to a $50 billion business when including internal use. This isn’t recorded as revenue, but helps it lower its capital expenditures (capex) and reduce inference costs.
Amazon has also quietly been building out a satellite internet constellation, and just got a big boost when it agreed to acquire Globalstar and its important spectrum and assets. While the deal will help it offer satellite internet services, it does much more than that. More importantly, it gives it an end-to-end encrypted channel to and from physical devices and Amazon Web Services (AWS) that can bypass public internet connections, and it could become the foundation for an Internet-of-Things offering that doesn’t rely on third-party connectivity. That becomes a powerful, competitive moat and another big potential growth catalyst.
Alphabet: An AI chip leader
Another company that has been going about its business and pressing its advantages is Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). Over the past decade, the company has quietly developed one of the best chip businesses behind the scenes. It optimized its entire hardware and software stack around its Tensor Processing Units (TPUs), giving it a performance edge and huge structural cost benefit. This lowers the costs to train and run inference for its top-tier Gemini model, while giving it solid margins for its cloud computing business.
Now it is even starting to let customers deploy its TPUs directly through its partner Broadcom, adding another strong revenue source. Wells Fargo recently projected that Broadcom TPU sales to Anthropic will add $2.5 billion in high-margin Google Cloud revenue this year and $7.5 billion next year. It estimates that Alphabet gets a $2,500 licensing fee for each TPU sold, with an 85% gross margin.
Meanwhile, the company is reportedly in talks with Marvell Technology to develop two new chips. One would be a memory processing unit that works alongside its TPUs, and the other a new TPU designed specifically for inference. Alphabet’s chip business is a huge differentiator for the company, and it is looking to continue to press this advantage.
While best known for its search business, Alphabet has become an AI juggernaut. It’s the only company with both a leading AI model and top-tier chips, and it has the most complete AI stack, which just got stronger with the completion of its acquisition of cloud cybersecurity company Wiz. Not everything Alphabet is doing is front and center, but this is a company that’s pushing its AI advantages and building new catalysts, which makes it a long-term buy.
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Wells Fargo is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Alphabet, Amazon, and Broadcom. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, and Marvell Technology. The Motley Fool has a disclosure policy.
