Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!
— Donald J. Trump (@realDonaldTrump) April 2, 2018
President Trump continues to move markets, and his messages about Amazon haven’t gone unnoticed. Apple seems to be targeting wider gross margins in coming years, as it looks to bring in-house a part of its supply chain. Intel’s shares overreact.
By Brian Nelson, CFA
President Trump seems to want to put Amazon (AMZN) in its place, and his recent comments have been a source of fear for many investors of the web services provider. The White House appears to be more interested in increased regulation against Amazon than Facebook (FB), despite the latter’s fallout following the Cambridge Analytica scandal, and while we think concerns over Facebook’s data leak may be overblown, we don’t necessarily disagree with the President on Amazon.
The online retailer seems to be taking considerable advantage of government resources, and it may not be paying all that it should with respect to taxes, as it puts retailers out of business and displaces jobs. We’re not agreeing or disagreeing with President Trump, but his pointed comments make for increased long-term risk at Amazon. We wouldn’t expect any developments in the near term, as the White House is not pursuing actions against the company, but this could change over the long run.
In other news, rumors are swirling that Apple (AAPL) may forgo working with Intel (INTC) in its Mac computers from 2020, according to Bloomberg. We don’t think the move is that unexpected, given that we think Intel will be a bigger player with Apple in mobile in coming years (modems), and we think the shift by Apple to bring some of its technology in-house will benefit its gross margin. Investors sold Intel on the rumor, but even high estimates put Apple’s contribution to Intel’s revenue at 5%, in aggregate. Less than 1% of Intel’s current profit stream comes from Apple.
Nothing is guaranteed yet either. Bloomberg noted, for example, that “Apple could still theoretically abandon or delay the switch.” Net-net, if the rumored move does happen, it will likely give Apple increased control over the timing of its product upgrades/releases, and perhaps represents only a minor setback for Intel in the aging PC market. We wouldn’t expect Advanced Micro Devices (AMD) or Qualcomm (QCOM) to be immune from industry trends, but Apple is far from a dominant provider in the PC arena at ~7% share, according to IDC. Intel’s sell-off appears overdone as we don’t think extrapolating this development into mobile makes much sense, at least at this time.
We don’t expect to make any changes to the simulated newsletter portfolios as a result of the news. We are maintaining our view that Amazon’s shares are considerably overpriced, and we think our positive stance on both Apple and Intel is still warranted. Both Apple and Intel are included in the simulated newsletter portfolios.
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.