Without an AI story, Walgreens Boots isn't a buy: Investor

In today’s edition of Good Buy or Goodbye, host Julie Hyman scopes out the relationship between retail and artificial intelligence with GraniteShares founder and CEO Will Rhind.

Rhind rates Amazon (AMZN) a "good buy," noting the momentum surrounding the company’s $2 trillion market capitalization. He explains how Amazon Web Services is benefiting from AI demand and points to Amazon’s cost-cutting and efficiency measures as another tailwind.

On the other hand, Rhind would avoid Walgreens Boots Alliance (WBA), citing disappointing third quarter earnings, consumer weakness concerns, and the lack of an AI story against the challenges of the traditional retail model.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This article was written by Gabriel Roy

Video transcript

It's a big, noisy, universal stocks out there.

Welcome to goodbye or goodbye.

Our goal.

To help cut through that noise to navigate the best moves for your portfolio.

Today we're scoping out the relationship between retail and artificial intelligence.

I'm here with granite chairs.

Founder and CEO will right?

Can see.

Well, thanks for being here, thanks to the So let's get to your buy stock.

And that is Amazon And the stock has already done quite well over the past year.

It's up around 50% here.

So let's talk about your continued case for why it could go up.

And it starts with that market cap milestone.

And I guess you could argue the wind is sort of at its back.

That's right.

There's a lot of momentum.

Clearly, the company has made a number of changes since the pandemic, all which has benefited them really greatly.

And I think the two trillion is just a nice milestone to say that Amazon is back.

But it's in the league now, with the NVIDIA and Microsoft and the other $2 trillion market cap companies.

And speaking of those other companies, of course, one of the reasons that we have seen them gain so much is what's going on with a I.

So where does Amazon sort of fit into that universe right now?

So Amazon is lucky because it benefits from its Amazon Web services business.

And it's one of these hyper scalar Cloud Data Centre businesses, which is benefiting from the huge demand that we see everywhere in the market for a I and for a I based products.

So that was one area of weakness that Amazon had in the last sort of couple of years, where the growth in that AWS business slowed down.

But we're starting to see a reeler of AWS and the services that Amazon is providing again, all on the back of demand for a I.

And of course, they are also using a I not just for AWS but in the retail business.

I mean, they have always used machine learning and a I, but I imagine now they know everything about me.

Unfortunately, as a prime customer, and I'm sure they are using it to their advantage.

Absolutely.

And this is only going to get better.

So the convenience, the all things that Amazon does to offer the best kind of product and service to the consumer is only going to be augmented by further advances in a I up selling me more stuff.

And then finally, it's not just on the demand side, right, it's also they're still sort of cutting costs and getting leaner.

That's right and again.

One of the big, big things that Amazon did was in an environment, perhaps, where we had zero interest rates and we had a market that was awash with liquidity.

The market share pursuit type strategy that Amazon was pursuing was maybe the right idea or the right strategy for that time.

But clearly, with the interest rate environment that repriced all business models like that, there had to be a focus on costs.

There had to be a focus on efficiency on improving margins, and that was the discipline that was injected into Amazon.

And so the new CEO, of course, has really focused on that the last few years, and the business from a margin perspective.

Profitability if has improved vastly and you expect them to continue with the cost cutting or more just sort of reaping the benefits of it.

No, absolutely.

I mean the company has laid off, I think, 20 27,000 people.

Over the last few years, there have been big efforts to improve on the logistics side of the business to manage inventories better.

And I think the market clearly loves that part of the Amazon story, hence part of the $2 trillion market cap.

So from that perspective, I think there is no reason to believe that the company won't continue to do this.

All right, let's talk about what could potentially be a risk here.

And that's that there could be a slowdown for AWS.

Is that because of market share issues, or how could that happen?

I think it's more we saw before.

Such as If a. I doesn't turn out to be the growth story that perhaps everyone predicts, or just a lack of spending from a competitive perspective vis a vis other competitors.

Amazon is not the only player in that space that competes with other hyper scalar in the business, such as Microsoft's as your product or Google's cloud solution, so it could suffer from competitive pressures on that front.

All right, let's get to the stock that you think folks should avoid on the retail front, and that is Walgreens Boots Alliance.

The stock is already down some 50% or so over the past year, so kind of a mirror image of what we've seen with Amazon.

And it just reported third quarter numbers that the Street did not like cut its outlook.

So it has been struggling.

That's right, Q three numbers were horrible, and I think again, it's a It's a It's a useful case to position it against a stock like Amazon to really think about the challenges that a lot of these traditional retailers are facing, and this is a combination of all sorts of factors.

But unfortunately for the Walgreens franchise at the moment, very challenging time, and they are also shutting a bunch of locations.

So we've got sort of broad consumer weakness.

How is that playing out with Walgreens?

Because on the one hand, the company sells stuff that people need in terms of drugs and stuff.

But I guess there is also a discretionary factor.

That's right.

It's a kind of tale of two halves in a way.

On the one hand, you've got a lot of physical locations, and clearly Walgreens doesn't have the sort of, you know, technological, online delivery, logistics, you know, part of the business that a company like Amazon enjoys.

But the physical stores too many physical stores, companies looking to rationalise by cutting down under performing stores and then within the stores themselves, the pharmacy business.

The health care business is performing actually quite well, but the retail side much less so and again because it's competing with these larger players.

The other challenge in pharmacy, of course, is the drug market and the fact that they can't fully control what they charge customers for prescription drugs.

And that's also an issue that is broader than just Walgreens itself.

So kind of a few pressures there, gotcha, macro pressures as well.

And then finally a I Is there any a I here when it comes to Walgreens And again, there's no A I story, because this is a story where it is a traditional retailer as such and therefore doesn't have the luxury of a hyper scaling cloud data business to fall back on, or at least to be part of those services.

And I think when you're talking about the convenience factors that companies like Amazon have improved that offering consumers since the pandemic have gotten more and more used to convenience in everything that they do it again makes it especially challenging for these more traditional retailers to compete in that environment.

All right, let's talk about what could go right for Walgreens, and that is sort of leaning into the business that you said is working, which is health care.

That's right.

And we all know that the demographic issues that we have in this country around health care and we all know that health care is a sort of a booming business at a very macro level and will probably only get stronger as more and more.

You know, people get into retirement and have more demand for health care products and services.

However, that part of the business, like I said, is actually performing quite well.

It's really trying to rationalise the under performing parts of the business, so I think if they can do that and clearly that's part of the CEO strategy.

As part of the strategy of the company to get rid of under performing stores to rationalise the product line, focus more on health care, then that clearly is the is the upside case for the business, right?

Well, we'll see if that happens.

And meanwhile, you don't have a position in either of these stocks, right?

No, I do not.

OK, well, thanks for being here.

Good to see you.

And thank you so much for watching goodbye or goodbye.

We'll be bringing you new episodes next week at 3:30 p.m. eastern.