Is Amazon (AMZN) the most vulnerable of all the FAANG stocks? Is it the one the market should be worried about, now that it is 100 points from the high? Could it be responsible for some real damage to this market, as it has come off more than 130 points from its high and helped lead us down today?
As I scan the big-capitalization tech and growth stocks, this one has stood out as among the weakest and I can see the bear case unfold right in front of me.
The other day, the former CEO of Home Depot (HD) , Frank Blake, gave an interview with a local paper that called Amazon the "dark star" and said everyone has to have a strategy to deal with Alexa. They have to because Alexa may be steering, driving business to Amazon channels that are much more for Amazon than for the competition.
Now we learn today that Walmart (WMT) teams up with Google (GOOGL) with a home device that could rival Alexa one day. Now Alexa has so much information about you that you could probably ask her to book a vacation somewhere and she knows where you stayed in the past and what amenities you want, so she can probably do it better than you and in a lot less time. She has all your information. Machine learning will teach her what to order. She is frighteningly powerful.
Nonetheless, Walmart is not going to be outdone. It has too much money riding on this fight and the company keeps assuring me you ain't seen nothing yet on this front. Over time, I am sure Google will have every bit as good technology as Amazon and Walmart will be able to take advantage of it. Remember, Walmart has spent a great deal on technology in the last two years and has Jet.com, which it can place under Amazon's umbrella.
When we look at FAANG, we know that Amazon had the weakest quarter of the bunch. It's not like you are about to get an earnings breakout because we know today Whole Foods (WFM) shareholders voted in favor of the chain being taken over by Amazon. This is not necessarily good news initially, at least for Amazon, because the supermarket business has low margins and Amazon is going to have to spend a fortune to make this acquisition work. That's the type of thing that may not be in the stock but might be starting tomorrow when the analysts create numbers for what the new Amazon's going to do, and it won't be pretty.
I think the distraction of this acquisition could challenge anyone, including Jeff Bezos.
Other companies are catching up. This was the quarter where you could tell retailers are determined not to lose customers to the web. Macy's (M) yesterday brought in a technologist from eBay (EBAY) to help with its online business. They need that fresh pair of eyes. Every retail supplier from PVH (PVH) , which is on tonight, to Nike (NKE) has a strategy that's been far more winning than I realized.
Lowe's (LOW) may have had a disappointing quarter, but they are ponying up for a big-time online effort.
Meanwhile, the real retail winners this quarter have some sort of edge that's not going to be taken away. For example, TJX (TJX) and Ross (ROST) have lower prices than Amazon because they come in with cash and they buy close-out merchandise and they either sell it at radically discounted prices or, if it is seasonal, they hold it until next year. (Google and TJX are part of TheStreet's Action Alerts PLUS portfolio.)
I don't know if you caught it last night, but Salesforce.com (CRM) CEO Marc Benioff told the story of a bunch of luxury retailers that are using the Salesforce platform to personalize the process. That's so necessary because touch and value are the two ways to beat Amazon if you can't topple them on price. The big European designers and their merchants get the power of customer relations management, and this is business that might have otherwise gone to Amazon or not happened at all.
Amazon may have ambitions for China, but the longer we watch the stock of Alibaba (BABA) go up, we should recognize that that brilliant company is going to be able to box out Amazon in the biggest market in the world. That matters, believe me. Consider the rest of FAANG. They rely heavily for foreign expansion even though Google's not allowed in China right now.
Don't forget that Amazon has this powerful hosting business, Amazon Web Services, where the profits are prodigious because hosting has monster gross margins. Any company approaching the cloud in serious fashion goes to Amazon, or Google Web Services, or Microsoft (MSFT) Azure or IBM (IBM) . I often hear that Amazon offers the best product and has its act together in a rigorous and tight fashion.
But think about this tie-up between the Google device and Walmart. What happens if Walmart calls all of its suppliers and says, "If you want into this program, it only works on Google's web services, not on Amazon's"? What then? Do you want to lose that business? Do you want to cross the Bentonville colossus? How about if they offer you help to get off of Amazon Web Services? Would you refuse? Don't forget that Walmart offers free two-day delivery with no membership fee.
We know Amazon isn't sitting still. We had Cardinal Health (CAH) on last night and that company supplies a huge percentage of America's pharmacy distribution business. It has a tie-up with CVS (CVS) . How about if Amazon decided it was going to build out all these Whole Foods that have a pharmacy in them? Amazon wants to be in the tickets business. Can you imagine how much of your life they could learn from that? It would be incredible what they could push to you. We keep hearing that Amazon wants to be in auto parts. They have the scale to crush it if they want. How about an Amazon credit card? How about Amazon money? A national bank of Amazon? The possibilities are endless.
The fact is, though, Amazon's in spend mode. Amazon is in one of those moments where earnings seem very unimportant and, instead, the execution of its new, alien bricks-and-mortar concept takes center stage.
If that's the case, then you could see why so many prominent technicians have decided that Amazon's chart has a real problem, namely that institutions are figuring out the vulnerability of this monster and want to take a pause until more understand what could ail it. At that point, once again, no doubt, it will be safe to buy.