Amazon’s $38 Billion OpenAI Deal — And Why We Were Already Bullish on the Stock
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode of Prof G Markets, Ed Elson explores the current state of tariffs with Flexport CEO Ryan Petersen, who reveals that (04:59) companies are experiencing less paralysis than earlier this year but remain in a "wait and see mode" due to ongoing policy changes. The episode also covers Kimberly-Clark's massive $48 billion acquisition of Kenvue with Axios business editor Dan Primack, who discusses the strategic rationale behind the deal despite significant litigation risks. Finally, Ed analyzes Amazon's $38 billion partnership with OpenAI and explains why this positions Amazon as an undervalued AI player poised for growth.
• Main themes: Trade policy uncertainty, major M&A activity in consumer health, and Amazon's emerging AI dominance through strategic partnershipsSpeakers
Ed Elson
Ed Elson is the host of Prof G Markets and a business journalist focused on financial markets and corporate strategy. He brings sharp analysis to complex business developments and conducts in-depth interviews with industry leaders across various sectors.
Ryan Petersen
Ryan Petersen is the founder and CEO of Flexport, a global logistics and supply chain management company. He provides unique on-the-ground insights into international trade, tariffs, and supply chain dynamics, making him a go-to expert for understanding the real-world impact of trade policies.
Dan Primack
Dan Primack is the business editor at Axios and author of the daily Pro Rata newsletter. He is a veteran business journalist who specializes in mergers and acquisitions, providing expert analysis on major corporate deals and their strategic implications.
Key Takeaways
Adaptive Businesses Thrive in Uncertain Times
Ryan Petersen emphasizes that (10:54) "businesses that are able to adapt quickly to change have done the best" during the current tariff environment. However, he clarifies that adaptation doesn't always mean rapid decision-making – sometimes the best strategy is staying still when the landscape is volatile. This insight challenges the common assumption that agility always requires speed. Companies that have succeeded are those that can quickly assess changing conditions and make strategic decisions about when to act versus when to pause. The key is having systems and decision-making frameworks that allow for rapid evaluation of new information without being reactive to every policy shift.
Fraud is Undermining Tariff Effectiveness
Petersen reveals alarming statistics about tariff evasion, stating that (08:56) "around 10% of all freight that's coming into The United States from China has shifted terms" to enable fraud. He explains that Chinese companies are exploiting America's unique legal structure that allows foreign companies to import goods directly, then undervaluing shipments to avoid duties. This creates an uneven playing field where honest importers pay full tariffs while fraudulent actors gain competitive advantages. The scale is staggering – (10:02) "60% of all the Amazon sellers are Chinese" operating as non-resident importers, making enforcement nearly impossible since the US lacks agents in foreign countries to prosecute violations.
Strategic Acquisitions Can Create Value Despite Controversy
Dan Primack explains that Kimberly-Clark's acquisition of Kenvue, despite the Tylenol controversy, makes strategic sense because (21:30) Americans are getting older and need more health and wellness products. The deal allows Kimberly-Clark to "own the entire life cycle" of consumer needs, moving beyond traditional products like diapers and toilet paper into healthcare. While investors initially reacted negatively due to litigation risks, the strategic rationale is sound for long-term growth. The key lesson is that contrarian acquisitions during periods of controversy can create significant value if the underlying business fundamentals remain strong and the strategic fit is compelling.
Market Timing Creates Acquisition Opportunities
The Tylenol-autism controversy created a unique acquisition opportunity, with Kenvue's stock falling (19:13) 22% in the weeks following Trump's comments. Primack notes that while Kimberly-Clark is paying a 46% premium to Friday's closing price, this is roughly the same level the stock traded at before the controversy. This demonstrates how external factors unrelated to core business performance can create temporary dislocations that savvy acquirers can exploit. The lesson for professionals is to distinguish between fundamental business problems and temporary market sentiment when evaluating opportunities.
AI Leadership Isn't Always Recognized by Markets
Despite Amazon Web Services being (28:40) "the largest compute provider in the world" and essential for AI operations, Amazon has been viewed as an AI laggard while companies like Microsoft and NVIDIA get all the attention. Ed explains that Amazon is trading at historically low multiples (34 times earnings versus a five-year average of 60 times) despite having strong positioning in AI infrastructure, custom chips, and cloud computing. This highlights how market perception can lag reality, creating opportunities for investors who can identify fundamental strengths that aren't yet reflected in valuations.
Statistics & Facts
- Approximately 10% of all freight coming into the United States from China has shifted terms to enable tariff evasion, as revealed by Ryan Petersen (08:56). This represents a massive scale of trade fraud that undermines the effectiveness of current tariff policies.
- 60% of all Amazon sellers are Chinese companies operating as non-resident importers (10:02), according to Petersen's analysis. This structure makes it nearly impossible for US authorities to prosecute customs violations since America lacks enforcement agents in foreign countries.
- Ocean freight volumes from China to the US are down approximately 20% year-over-year (07:05), indicating a significant goods recession despite overall economic growth driven by services and AI-related investments.
