I'm in the Epstein files (and proud of it); A review of Amazon's earnings and valuation; Smart vs. dumb speculations
I'm sure my Epstein reveal in the title caught a lot of your eyes. We'll get to it. But first, a little finance...
1) My favorite large-cap stock for 2026, tech bellwether Amazon (AMZN), reported fourth-quarter earnings yesterday. So let's take a look...
(You can see the full earnings release here and investor slide presentation here.)
Net sales came in at $213.4 billion, slightly above expectations of $211.3 billion. That equates to 14% growth year over year ("YOY"), and 12% when adjusted for foreign exchange rates. This gives it a staggering $717 billion in trailing-12-month ("TTM") sales.
Amazon is one of the largest companies in the world, so it's incredible that it continues to grow its top line at double-digit rates while also expanding margins. This has led to booming profits, with operating income soaring 29% (excluding three one-time charges).
Earnings per share ("EPS") of $1.95, however, only rose 5% and missed expectations by a penny. This was due to the one-time charges and a higher tax rate.
The highly profitable Amazon Web Services ("AWS") business led the charge for revenue growth, at 24%. That's an acceleration from 20% growth YOY in the third quarter.
This next chart shows AWS's net sales and operating income over the past five quarters:
Advertising revenue, which is nearly pure profit, contributed hugely to net sales. This segment grew 22% YOY to $21.3 billion.
So, why was the stock down as much as 10% this morning? Two reasons...
First, while first-quarter revenue guidance of $173.5 billion to $178.5 billion was in line with forecasts, operating-income guidance of $16.5 billion to $21.5 billion was well below expectations of $22.2 billion.
This miss was related to the second reason: Amazon guided to a staggering $200 billion of capital expenditures ("capex") this year – $50 billion more than analysts were expecting – mostly focused on building out its cloud and AI infrastructure.
This tops Alphabet's (GOOGL) 2026 capex guidance of $175 billion to $185 billion, which it had reported on Wednesday. This smart New York Times article details how Amazon's huge spending plan raises the stakes in the AI race between Big Tech companies.
Does such high spending make sense? Will it pay off? These are the key questions for investors.
In the short run, it makes these companies, which previously had asset-light, high-free-cash-flow businesses, look a lot worse. If this is a permanent state of affairs, then these stocks deserve a much lower multiple and should be sold.
But I don't think Amazon – or Alphabet, Meta Platforms (META), or Microsoft (MSFT) – have suddenly gotten stupid with their spending. (This isn't like when Meta CEO Mark Zuckerberg flushed $77 billion on the metaverse.)
Rather, I think they're seeing a huge, multitrillion-dollar opportunity and are spending to make sure they're the winners – at the expense of OpenAI, among others.
My money's on them.
As a quick aside, it reminds me of when Netflix (NLFX) ramped up content spending between 2013 and 2020 to ensure it would be the winner in the streaming space:
This massive spending on content sucked up more than 100% of Netflix's free cash flow. But it proved to be a bold and brilliant investment, as the stock soared by 38 times over that period:
Turning back to Amazon, let's take a look at its valuation...
This morning's opening price was around $203, and EPS estimates for this year are $7.87. That means Amazon is trading at 26 times current-year earnings.
That's barely above the S&P 500 Index's multiple of 22 times to 24 times (depending on whose estimates you use) for one of the greatest, most dominant companies of all time.
Barring a recession, I think Amazon can increase revenues at a double-digit rate and grow profits at more than 20% annually for many years to come. That's especially as its investment in robotics pays off (it's currently operating 1 million industrial robots).
As such, Amazon continues to be a favorite of mine for the long term.
2) There's a lot of carnage out there in the markets, as this post on social platform X from Charlie Bilello highlights:
The crash is most pronounced in the crypto sector, as this X post from Ben Carlson shows:
This is great news for investors, who can now buy great assets and companies at lower prices.
But it's bad news for speculators in garbage like my "Stinky Six" (now down an average of 23% since I named the original list on October 29). It also spells trouble for investors of crypto and crypto-related companies like Strategy (MSTR), which I've warned my readers about a half dozen times (archive here).
To be clear, I'm not opposed to all speculation. But there's a big difference between smart and dumb speculation...
Electric-aircraft maker Joby Aviation (JOBY) is my favorite speculative stock, and it has gotten whacked recently (as I noted in my January 30 e-mail). I'm not worried because Joby is a real, market-leading company with incredible technology, engineers, and an innovative product.
It's very difficult to value and could be a zero, which is why I've always called it a speculation and said to size it appropriately. However, I'm confident that the wide range of possible outcomes skews strongly to the upside.
But what do you do if you own bitcoin and it gets cut nearly in half?
It generates no revenue or profits. And unfortunately, it's widely used for fraud and other crimes. So how do you know at what point it's cheap enough to buy?
It's a terrible position to own something, see it take a nosedive, and then not have any conviction to buy more – particularly if you don't know what you're doing in a risky space like cryptocurrency.
(For more, see this NYT article: Crypto Takes a Deep Slide Despite Trump's Support.)
3) When someone's name appears in the Epstein files, it's a badge of shame and is often quickly followed by a public cancellation and groveling apology.
In my case, however, it's a badge of honor – albeit not a very exciting or consequential one.
Here's the entire entry related to me linked on the U.S. Department of Justice's website. And here's the key excerpt:
At the time of my e-mail, Epstein had been arrested but hadn't yet died – that occurred a month later on August 10, 2019.
Everyone was trying to figure out the depth of his crimes and, in particular, how he had amassed so much wealth. A friend of mine heard that the source of most of this wealth was from Epstein's longtime girlfriend, Ghislaine Maxwell.
She's the daughter of British media tycoon Robert Maxwell, who had stolen massive sums from his company before dying under mysterious circumstances. My friend's theory was that he had stashed a lot of money in Swiss bank accounts for his daughter, who in turn shared it with Epstein.
I had no idea if this story was true. (And based on what we know now, it probably wasn't – Epstein was simply a master at conning rich people.) But I wanted to help the FBI in any way I could.
I'd previously met an agent in 2015 when I reported a phishing attempt to steal from my hedge fund. So I reached out to him again with the quick e-mail above. He put me in touch with another agent working on the Epstein case, I shared the story I'd heard, and he thanked me.
After that, I never heard from the FBI – or thought of this exchange – again... until I got an e-mail last week from an NYT reporter who saw my name in the files and wanted to know the details.
Nothing came of my outreach to the FBI, but I'm glad I tried to help. Law enforcement often cracks difficult cases thanks to tips from random citizens!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Happy 16th birthday to Rosie the Wonder Dog!
It's my goal that someday my wife and daughters love me 10% as much as they love Rosie. I estimate that I'm currently at 5%...
