Amazon’s (NASDAQ:AMZN) decision to promote the head of Amazon Web Services (AWS), Andy Jassy, as the company’s new CEO was an excellent call. As a result, I’m upbeat on the longer-term outlook for Amazon stock.
History suggests that individuals with extensive technical backgrounds tend to make better CEOs of tech companies than those without. Although Jassy did not have a technical education, the many years he spent as head of AWS, in my opinion, has given him an extensive tech background.
Advantage to Tech Background CEOs
Jassy took the helm of AWS in 2003, when he was still in his early 30s. As a result, I believe that the executive, who received both a liberal arts degree and an MBA from Harvard, likely has a great deal of technical knowledge.
As one Seeking Alpha blogger, Damon Verial, noted earlier this month, Microsoft (NASDAQ:MSFT) struggled under Steve Ballmer when Bill Gates stepped down; Similarly, Apple (NASDAQ:AAPL) struggled to produce new intellectual properties under Tim Cook when Steve Jobs took his leave. “Google hasn’t produced anything significant since (Sundar) Pichai replaced (Larry) Page,” he wrote of the changing of the guard at Alphabet (NASDAQ:GOOGL).
Ballmer’s background was primarily in sales, while Cook’s career was focused on managing supply chains. Another CEO who struggled in recent years was Intel’s (NASDAQ:INTC) Bob Swan, whose background was mostly in finance.
Conversely, Gates and Jobs both had tech backgrounds. So did Google’s Page, who did a very good job during his tenure as that company’s leader and Satya Nadella, who turned Microsoft around. In the chip space, Nvidia (NASDAQ:NVDA) CEO Jensen Huang has a tech background, and that company has been tremendously successful.
Key Player in AWS Success
AWS is far and away the leader of the very competitive cloud sector. Earlier in February, research analysts at Canalys reported that AWS has a 31% share of the market, with Microsoft’s Azure coming in a distant second with 20%.
Last quarter, AWS generated around $12.5 billion of revenue, up from $7.5 billion two years earlier. Its operating profit jumped to about $3.75 billion, versus about $1.25 billion two years earlier. AWS generates the lion’s share of the company’s profits.
Jassy should get a large chunk of the credit for AWS’ success. Moreover, the unit’s stellar record indicates that he can effectively lead a large, technical organization like Amazon.
New Interest in Video Games
During his last decade as CEO of Amazon, Bezos launched many initiatives which did not seem to gain much traction, such as the Haven health-insurance venture and an effort to sell prescription drugs. Very few of Bezos’ initiatives appeared to focus on technology in general or AWS in particular.
Jassy may seek to launch more tech-oriented initiatives, such as software-as-a-service products or data-oriented offerings. Indeed, he has already stated that video games will be an area of focus for Amazon.
And the new CEO, who’s probably much hungrier for success than the tycoon Bezos has been the last several years, will probably work much harder than his predecessor did to ensure that his initiatives are extremely successful.
The Bottom Line on Amazon Stock
Amazon has picked a great successor to Bezos, one who is likely to continue managing AWS very well, greatly expand the company’s tech offerings, and work very hard to ensure his initiatives succeed.
Meanwhile, the exit of Donald Trump from the White House has removed a big threat that had been looming over Amazon stock. E-commerce and the cloud should both continue to grow very rapidly. Given these points, I recommend that longer-term investors look to buy Amazon stock at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
