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Hey, I'm Cramer. Welcome to a special Seattle edition of Mad Money. I'll be with friends. I'm just trying to make a little bit of money. My job is not just to entertain but educate, to teach. Call me at 1-800-743-CNBC. Tweet me at Jim Cramer.
This morning my Squawk on the Street co-host Carl Quintanilla asked me at what point does the war actually matter. I told him that our stocks are relatively insulated from the war because so much of our economy is service-based, and that means it's domestic. You don't export service. Aside from travel and leisure, I said I think we'll be okay. But — and this is a very big but — there's one case where things could go awry: if oil prices rise so relentlessly, so high, that they impact our bond market, because we can handle higher oil but we can't handle higher interest rates. Today we saw a glimpse of that future, with the Dow ultimately tumbling 557 points, or 1.41%, and the NASDAQ declining 1.19%.
The market was looking up this morning, 6:00 a.m. futures rallying. You could imagine the month of May kind of turning out a lot like April. Then a little after 6 Eastern, we got reports that Iran had launched some missiles at two different U.S. warships. The futures plummeted. The gains vanished. And worst of all, the Treasuries took a big hit. Rates soared. The 30-year Treasury vaulted right through 5. And the grand thesis — the idea that peace might be breaking out in the Middle East just when we have a new Fed chief coming in who wants to cut rates — seemed to vanish before our eyes.
Incredibly, the story about the missiles on our navy turned out to be false, or at least exaggerated, as no U.S. ships were actually hit. But stocks kept getting hammered because the Iranians were busy violating the ceasefire and launching drones and missiles at countries throughout the Gulf. Yep, the war's back on. And unless the president does something beyond talking about shallow victories and gets that straightened out, we're going to see interest rates keep climbing. At a certain point, the grand plan to get the domestic economy growing faster will turn into an inflation-addled grand illusion. Sure, there were pockets that went higher. Oil, of course, rallied. Every time something bad happens, they rally. Some of the data center stocks crept higher, and the bedraggled enterprise software players had their day in the sun — although their day only seems to be about half a day, and the decline then resumes. Overall, it's a plug-ugly session.
Maybe that's a good reason to take a break from focusing on the war and head out to Seattle to see the company that never sleeps, with its CEO who doesn't seem to sleep either. I'm talking about Amazon and its CEO Andy Jassy. Higher interest rates can fell many a company. But if you want to guess who'd be the last man standing, you could do a lot worse than betting on Amazon, with a stock that rallied $3.79 today. If there were a couch bet about which company could thrive with a crimped consumer, it would somewhat oddly be Amazon, because their goal is always to keep prices as low as possible, making the ultimate trade-down play.
There's a reason we own this one for the Action Alerts Plus. I'm in awe of how Amazon's become all-encompassing in so many aspects of our lives. Today — literally today, while I'm here, but not in honor of me, because even I'm not narcissistic enough to believe that — Amazon rolled out a whole new business line: supply chain services, where customers in all sorts of industries, like drugs and pharma and retail, can use Amazon's massive transportation logistics arm. You've seen the trucks on the highway. No one seems to be able to get anything to you as on time as Amazon does. So if you're a Ford dealer waiting for a Ford F-150 truck part for an angry customer, or you're a small pretzel maker who might want to avoid the costly American distribution system, you can call Amazon, get it to the customer on time, and save a fortune.
When I hear things like that, I try to figure out how much Amazon means to America, means to you. No one has ever been that big a factor to our growth since Standard Oil got broken up for monopolizing the oil market over a century ago. I bring this up because I'm never going to deviate from the notion that all economies are based on credit, including ours. We need rates to stop rising, and I'm beginning to believe that we're just a couple of well-executed Iranian drone strikes away from $110 crude and a five-and-a-quarter yield on the 30-year Treasury. Maybe we're half a dozen successful missile strikes away from $120 oil, and then we're slouching towards 6% on the 30-year — something I don't even want to think about, because it would be like taking a machete to the S&P 500. So why not sell and get out ahead of the potential pain? Simple: because of places like where I am today.
What comes up occasionally comes down. And if this war ever ends, I can only imagine what will happen to interest rates and to travel and leisure, the hardest-hit segment of the economy. What you really would need to own, though, are the companies that actually dominate the new economy. It's good to say we're two-thirds service and one-third industrial. When I'm at Amazon, it feels like old hat, like I'm mouthing what I learned 50 years ago in Econ 101. I leave here thinking something different may be happening — something that explains the strength of tech and the all-powerful nature of the hyperscalers, the behemoths of Amazon, and maybe the stock market in general. This economy is a computer-driven economy. We run on compute. It's a big reason why our economy hasn't slowed as much as others. We're just getting more and more computer-oriented in a positive way, because a computer-driven economy uses AI to make everything faster, better, cheaper. And that's why we have some immunity from the world's troubles.
Which brings me to the bottom line. The amazing thing about the computer-driven economy is that it doesn't care much about oil or interest rates. So before you get too glum, remember that the drive of computers is going in one direction — higher — and it's taking a huge number of stocks along with it. Let's take calls. Let's go to Gabriel in Maryland. Gabriel?
I am doing well. How about you, partner?
I'm all good. I mean, tomorrow it's Cinco de Mayo. As a Mexican American, I'm very proud of all your support that you have been giving to the agave spirits coming from Mexico. You're doing great. Very proud of it.
Well, thank you. Thank you. We got a nice business coming out of Jalisco and also out of Puebla. So thank you for noticing that. I really appreciate it.
No, thank you. And I want to take your brain and pick a little bit of your ideas on Blackstone. I've been accumulating Blackstone since mid-March.
Okay. And I've got to tell you something, Gabriel. I like Blackstone very much. I just talked to and watched Jonathan Gray today, talking to David Faber. I think it's a really good situation. If anything, I'm interested in buying more Blackstone. That's how good I think it is. And Phosphoro thanks you tremendously. Before you get too glum, everybody, remember that this computer-driven economy isn't impacted by oil or interest rates as much as others. We got a very special Mad Money head start with my sit-down with the man himself, Amazon CEO Andy Jassy. From Amazon's investments in AI to its plans to take on Starlink, you do not want to miss anything from our wide-ranging conversation. Then, as memory and CPU stocks keep setting new all-time highs, I'm breaking down why Wall Street's been caught so off guard by their move going higher. And I'm getting a read on the real estate investment trust industry with the bankable CEO of Federal Realty Trust. Find out how the consumer is doing shopping after the company beat and raised last week. Stay with Cramer.
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To celebrate 250 years of American innovation, we're on the ground with the companies pushing things forward, highlighting the names helping build what comes next. And that's why we're here at Amazon's headquarters. The tech giant reported a really fabulous quarter last week, driven by their booming Amazon Web Services business for cloud infrastructure and AI. While this is still one of the largest retailers in the world, AWS alone has an annual revenue run rate of $150 billion. And they keep adding more to the story on a pretty regular basis. From setting up their own low-Earth-orbit satellites for internet service to offering their supply chain services to anyone who wants them, it's at the heart of the computer-driven economy. So let's check in with the man behind all these plans, Andy Jassy, the president and CEO of Amazon. Andy, thank you so much for taking us here, and welcome back to Mad Money.
It's great to be here with you.
All right. So you broke some news today, and I think it's kind of emblematic of what Amazon does. You've come up with something that is better for people, better for businesses, makes everything cheaper, run faster, and it's about logistics. Sounds a little bit like Amazon Web Services when you were running that.
Well, it has some similarities. I mean, today most companies don't think it's a good idea to run their own infrastructure technology themselves when they can put it in the cloud. I think over time you might find that most companies don't feel like it's a good idea to have to run their own logistics when they can use our supply chain services. And so if you think about what we had to do as a retail business, we had to get really good at being able to move products from manufacturers to upstream storage warehouses to the actual fulfillment centers where you actually do the fulfillment, to allowing people to sell in multiple marketplaces but have one inventory pool, to the last-mile delivery. We had to get good at all those to scale our retail business. We just said, you know, it makes so much sense to expose these services to companies of all sizes. And you know, today we announced that 3M and Procter & Gamble and L'Oréal and American Eagle were all using the services, but it may end up being the case that so many companies, small and midsize, get the most benefit, because to not have to build out their own logistics network is a big deal.
Well, when I hear — I just — terrific about Procter, and I know you want to send West East for American Eagle, but I always think about the small businessman or the middle who have normally gone to a distributor. Maybe they can go direct, and the distributor won't take the 30%. It is just a fantastic opportunity for someone who is just starting a business.
Yeah. You know, today, to try and compile a supply chain for any size business, but particularly a small business that doesn't want to have to build out all those capabilities themselves, is time-consuming and expensive. And so if we can provide those components at a very cost-competitive rate, like we do, and at a very high quality, it's very compelling.
All right. Now, I want to go to your letter, which was — look, I've told you at times when I thought you were like too soul-searching. This was the opposite. This was pure offense. And I know you're a sports fan and I'm a sports fan. I want to win with defense, but offense is exciting. Progression at Amazon is not exactly a straight line. What does that mean?
Well, I think I love this band, The Beths, and they have very clever lyrics and album titles. And this last album, Straight Line Was a Lie, really spoke to me, because most big inflections don't follow this one linear line. It would be so much easier if they followed this straight linear line, but they don't. And it means that you have to acknowledge that. It means that you're going to go through — there's going to be disruption. You're going to try ideas that don't work, and you have to go back to the starting line. If there's something important enough, you're going to have to think about: do I only want to take one shot at finding the answer, or am I going to take multiple parallel shots because it's so important? I have to make sure I find a winning solution here. And I think that when you believe that there is a particular inflection that is disproportionately important, like AI is as an example, you want to bet big, even if it means that you may over-rotate a little bit. These inflections are so big and so impactful on the future of what customer experiences are and your company that you want to make sure that you've gone all in on it.
Well, this is important because, by the way, you use the term reinvent four times, reimagine three times, and I was thinking, well, isn't that what you're doing right now when you spend $200 billion and you actually believe it's going to pay off?
Yeah. Well, I mean, to me, the really big capital expenditure bet that we're making is because we believe that AI is the biggest technology transformation in our lifetimes. It's going to reinvent every single customer experience we know, and altogether new ones we never imagined. And I, you know, if you look at the pace that things are growing — I mean, just — I used in the letter the example of the first three — after the first three years of AWS, we thought we were growing really fast, and we were about $56 million in revenue. And after the first three years of this inflection of AI, or this incarnation of AI, our run rate's over $15 billion — $260 times what it was the first three years of AWS. And we thought we were growing fast with AWS. So when you have shifts that are this momentous, you want to make sure that you invest in such a way that you can pursue the opportunity as broadly for your customers as possible, as well as for — I think not just our customers will benefit, but our shareholders and the company as a whole will be a very different company 5 to 10 years from now because we're betting big like this than it would otherwise be if we were conservative.
I think there's so many people, pundits, whatever, who say they're spending so much without any real hope of regaining it. Not only do you disagree with that, but you talk about a return in a couple of years, and then you're talking about 30 years — the return will be unbelievable. What are they missing?
Well, I think that it's — people sometimes forget the way the cash cycle works in a business like AWS. So the way it works is that we have to lay out capital and cash in advance of when we can monetize it. This is for land for the data centers, power, the buildings themselves, the hardware, the chips, the networking gear. You have to lay all that out in advance. Some of it is about six months in advance, and a bunch of it is two years in advance. And so that means that the faster we grow in AWS, the more capital we have to lay out in the short term, which will create challenges in your free cash flow in the short term. But these assets are many-year useful-life assets. You know, on the networking and the hardware side, it's about six years. On the data center side, it's 30-plus-year useful-life assets. And so you get to monetize those assets over a long period of time. So that when your revenue growth starts to catch up with the capital expenditure growth, you actually end up really liking the operating margin, the free cash flow, and the ROIC. And so we've lived this movie once before in the first wave of AWS, where we had this same type of curve, where we were spending so much capex in the short term, and then we all really liked the free cash flow and the ROIC a few years later. And I think this same story is going to play out, except with just much larger revenue and free cash flow downstream.
Okay. Now, in terms of inflections, I saw two — one was food, and the other was semis. And your description of these in the letter was just mind-blowing. One of the reasons why I think the stock went up so much wasn't just the quarter, but you explained how these could be big semiconductors. Do people know how big that business is for you?
Well, we're trying to help people be more aware of what that business looks like for us. And you know, it's kind of remarkable how fast our chips business is growing. It's — you know, last quarter we announced it's over a $20 billion annual run-rate business. And that may understate really the size of it. If we actually took all the chips that we're going to produce in 2026 and we sold them to AWS and to third parties in the form of racks, like most of the leading chip companies do, that business will look more like a $50 billion annual run-rate business. And you know, it's growing triple-digit percentages year over year. The two largest AI labs in the world, OpenAI and Anthropic, have made multi-year, multi-gigawatt commitments to Trainium, which is our AI silicon. You probably saw that Meta just announced that they're going to consume tens of millions of cores of Graviton, which is our CPU chip. Today, 98% of the top 10,000 EC2 customers use Graviton in a very expansive way. And so we — you know, the business itself, I think it's great for customers because it gives customers choice. It gives them advantage price-performance, but it also is going to be good for us long-term, because at our scale — like, think about what we're investing in capital expenditure right now. I expect that there'll be investment opportunities for a long time. At scale, it will save us tens of billions of dollars of capex a year and hundreds of basis points in operating margin, which is a big deal for us too.
When you say choice, it's important for people to understand — and I know you could say I'm too close to it — but that NVIDIA is often the alternative, and you remain an excellent customer of NVIDIA too.
Yeah, we have a deep partnership with NVIDIA. We will for as long as I can foresee. We have an immense amount of respect for them, and you know, we're going to always have customers that want to run NVIDIA on AWS, and we will continue to make AWS the best place to run NVIDIA. And that's true. And we'll also have, you know, a very good chips business, and that's because customers want choice. It's true in every technology. It was true in databases. It's true in analytics. It's true in frontier models, and it's true in chips. And so we'll be able to do both successfully.
I think we're well on our way.
Yeah. Okay. Well, we're going to take a break here, and we're going to come back, but there's a lot to talk about. Also, I'll get a little philosophical, you know, when we come back.
Before the break, I spoke with Andy Jassy, the president and CEO of Amazon. Because this is one of the most important companies in the world, there was more than we could cover in a single segment. So let's get right back into it. Andy, I want people to understand the ethos of Amazon. Maybe the best way to do it is to say something that you said in your letter: while other companies have been backing away from rural customers, we've been running to them. I think this is very much of what's going on in terms of lowering price, in terms of getting it so everybody can have stuff as fast as possible. And I just want you to speak to it, because it's not what every — it's no one's doing what you're doing. How about that?
Well, it's more expensive to try to service rural customers because your investments aren't able to be advertised across as dense a population, and so it's harder sometimes to serve rural customers. The reality is, you know, there is a digital divide in this country and in the world right now. And if you look at — to me, like, if you live in a rural area, the fact that you can't get items via, you know, e-commerce in less than three days, you know, I think it's unfair, and I think it's a bad customer experience. And so, you know, we've decided — we invested $4 billion to build out a last-mile delivery network for rural customers. If you look at the amount of items that we're getting to them now, same day, it's more than double already this year, year to date, versus last year. And we're still in the process of building out all the delivery stations. And so we're going to be able to get items to customers in rural areas so much faster, inside a day or two, which is a very different customer experience than what you could do before. I think the same is true around just the connectivity they have, where there is a real digital divide. The things that you and I are used to doing every day that we take for granted — doing business online, or education online, or shopping, or entertainment — those things you can't do in a lot of rural communities. They're without broadband connectivity. There's billions of people around the world who don't have broadband connectivity. And so if we're able to make that — if we're able to give them that connectivity, with, you know, we're building this low-Earth-orbit satellite called Amazon Kuiper, that completely changes what's possible for people in rural areas. So we, you know, yes, it's a meaningful investment, but the way we think about investments is we're trying to make customers' lives better and easier every day. And then we try to have a long time horizon how we think about it. And we believe over a long period of time, if we do right by rural customers, we make it much faster for them to get their items, they will shop with us much more frequently. And if we make it easy for them to get connectivity, it's going to be, you know, their lives will change, and what they're able to do, where they live will change, and that will benefit us too.
Well, there's an — the ethos includes democratization. I think it's really important. It also includes something that we can talk about when you're the second-largest grocer. And it bothers me tremendously when I see the CPI number and it's up, and I hear that the place I shop, Amazon, the prices are down. How do you reconcile this? And how do you keep prices — your prices overall are down versus last year. We have a bout of inflation. Everyone tells me he's going to send interest rates skyrocket. How do you do it?
Well, we have an expression that we've used for almost a couple decades at Amazon that it's pretty easy to lower prices, but it's much harder to be able to afford to lower prices. And it's really true. And so we spend — if you were in our meetings, we spend a disproportionate amount of time, A, inventing, and then B, trying to figure out how we can lower our cost to serve inside our fulfillment network so that we can continue to keep prices low for customers. So, you know, that takes the form of things like we've completely rearchitected our regional network in the U.S., so we get items to — we're able to store items closer to end users, so they travel shorter distances. They get there quicker, and it's less expensive to serve customers that way. We've completely rearchitected our inbound network again to try and get items to more fulfillment centers closer to the end customer. We spent a lot of time trying to figure out how to allow customers to add to their orders. We have a lot of customers who have items coming almost every day to them. And so we have this feature, add to order, where you can just add an item to an existing outstanding order, which seems easy enough from a UI perspective, but think about the logistics of an order that you're already processing and then being able to get that item in the same order. And so the work we do to get more units in each box — it's better for customers because they don't have to open as many packages and have environmental waste. And it's just a much better, faster experience, and it happens to be more cost-effective for us too.
Now, you're also doing some great things in medical, including prescription, same day, One Medical. I've used that. It's great. I think that the thing that really tripped up most Americans and has caused most bankruptcies is healthcare. Is there any chance that one day I can buy a healthcare insurance policy with you?
