Prof G Markets - Episode Summary

Episode: Is Amazon Losing Its Edge? What the AWS Outage Means for the Cloud Wars
Date: October 21, 2025
Host: Ed Elson
Guests: Mark Mahaney (Evercore, Head of Internet Research), Maurice Obstfeld (Berkeley/Peterson Institute)

Main Theme & Purpose

This episode dives deep into two of the week’s defining market stories:

1. The global AWS outage—what it means for Amazon, the cloud wars, and the broader digital economy.
2. The impacts of new U.S. tariffs—six months into sweeping protectionist policies, what are the effects on inflation, jobs, and the American consumer?

Both segments connect to the show’s mission of unpacking headline market news and exploring its ripple effects for investors and everyday Americans alike.

Key Discussion Points & Insights

1. The AWS Outage: What Happened and Why It Matters

• Incident Impact:

  • AWS suffered a major, cascading outage originating in Virginia. Result: more than 6.5 million outage incidents and 8+ million user reports worldwide, taking down over 1,000 company websites and services (e.g., Hulu, McDonald's, Snapchat, banks like Barclays and Lloyds).
  • Even Prof G Markets' own recording platform was impacted.
  • Ed Elson: “What looked like a routine technical issue quickly became a worldwide event.” (03:00)

• Analysis with Mark Mahaney (Evercore):

  • Crucial Infrastructure: AWS now powers a third of the global cloud market, bringing in more than $107 billion annually. Its failure is akin to a mass power outage for the internet.

    • Quote (Mark): “It tells you just how crucial AWS is to the Internet. This is a pretty big black eye for AWS.” (04:35)

  • Previous Outages:

    • AWS has had notable outages before (e.g., a seven-hour blackout in June 2024).
    • Cause here is likely a “mistake execution error” rather than malice, but details remain unknown.

  • Stock Market Reaction:

    • Surprisingly, Amazon’s stock rose slightly despite major technical turmoil.
      • Ed speculates investors are reminded “how much everyone needs AWS.” (05:54)
      • Mark counters, suggesting a negative reaction would come if the outage lasted into the next day.

  • Broader Implications for Amazon:

    • Ongoing issues could undermine AWS’s standing as industry leader and pressure Amazon’s valuation.
    • Amazon’s recent sluggish performance, especially compared to peers like Apple and Meta, is notably due to perceptions about “missing” the AI boom in cloud computing.
    • Quote (Mark): “It’s very hard not to look at the AWS results of the last two years … and not think that Amazon kind of missed a little bit this transition.” (08:38)
    • Retail and advertising divisions are performing well; AWS is the drag on overall sentiment.

  • Dislocated High Quality (DHQ) Companies:

    • Mark’s framework: Amazon may be “close” to a DHQ play—high quality but today’s underperformer, largely due to AI/cloud adoption narrative.
    • For market sentiment to shift, AWS needs to accelerate growth, specifically showing 20% year-over-year by end of 2025.
    • Quote: “If AWS can show that they’re exiting this year, 2025, with 20% year over year growth, I think that narrative will change rapidly.” (12:09)

Notable Quotes

• Mark Mahaney:

  • “This is a pretty big black eye for AWS.” (04:35)
  • “AWS has been the cloud poster child for a good solid 15 years now. … To the extent that something like this happens, it just raises questions about the durability of AWS’s leadership.” (07:22)
  • “The single biggest reason [for sluggish Amazon sentiment] has to do with AWS and the AI narrative.” (08:38)
  • “If AWS can show that they’re exiting this year, 2025, with 20% year over year growth, I think that narrative will change rapidly.” (12:09)

• Ed Elson:

  • “Maybe this brought to light how much everyone needs AWS.” (05:54)

Timestamps for AWS Segment

• [03:00] – AWS outage overview and scale of impact
• [04:09] – Interview with Mark Mahaney begins
• [04:35] – On AWS’s vulnerability and black eye
• [06:22] – Market reaction analysis and speculation
• [07:22] – Implications for AWS leadership in the cloud wars
• [08:38] – Comparing Amazon to other tech giants and the AI narrative
• [10:04] – DHQ (Dislocated High Quality) stocks discussed
• [12:09] – What Amazon needs to shift market sentiment

2. Six Months of Tariffs: Who is Paying the Price?

• Backdrop:

  • Since “Liberation Day,” U.S. has imposed tariffs of 35% (Canada), 50% (Brazil, India), and threatened 100% on China. New tariffs on lumber, furniture, kitchen cabinets just took effect.
  • Official narratives argue tariffs reduce deficits, bring back jobs, and raise government revenue.

• Interview with Maurice Obstfeld (Peterson Institute):

  • Outcomes vs. Promises:

    • Reality is at odds with official goals; the tariffs have not meaningfully reduced trade deficits or restored significant manufacturing jobs.
    • Inflation is higher, job growth has slowed, and costs are up for businesses and consumers.
    • Quote (Maurice): "There’s very little evidence that the goals are being met and some evidence of harm to the economy that is probably likely to grow." (16:04)

  • Why Effects Seem Muted (‘Mixed Bag’):

    • Other positive forces (AI boom, leftover Biden policies) have obscured just how much tariffs are hurting growth and employment.
    • But harm (especially input cost pain and persistent inflation) is emerging in the data.

  • Tariff Revenue is a Misleading Win:

    • Government touts $63B in new tariff revenue for August–September, but most of the burden falls on consumers and business profits rather than foreign sellers.
    • Tariffs are “just another form of tax”—but a regressive one that hurts lower-income and middle-class Americans most, while the concurrent income tax cuts favor the wealthy.
    • Quote (Maurice): “It’s really not a fair trade in terms of how aggressive the tax system is. … Tariffs mostly hurt those who are less well off.” (22:02)

  • Historical Context:

    • The new tariff regime effectively returns the U.S. to a 19th-century system, which was replaced by the income tax due to its inequity and negative economic effects.
    • Quote: “This strategy … is just turning the clock back more than 100 years.” (24:03)

  • Prospects & Inflation:

    • Prices are expected to keep rising. Inflation is up already; the recent CPI went from 2.4% to 2.9% primarily due to price hikes on tariffed goods.
    • Businesses, including Walmart, P&G, Target, and others, have confirmed they’re passing these costs on to consumers.

Notable Quotes

• Maurice Obstfeld:

  • “There’s very little evidence that the goals are being met and some evidence of harm to the economy that is probably likely to grow.” (16:04)
  • “The revenue is nothing to brag about. ... Tariffs mostly hurt those who are less well off.” (22:02)
  • “This strategy … is just turning the clock back more than 100 years.” (24:03)
  • “Tariffs have been a tax windfall that we are basically extracting from consumers … a wealth transfer from middle class and lower income Americans to higher income Americans.” (23:16-24:03)

• Ed Elson:

  • “According to Goldman Sachs, the American consumer is shouldering roughly 60% of the tariff burden right now, which is why prices are going up.” (27:13)

Timestamps for Tariffs Segment

• [14:40] – Tariffs: Six months in, setting the stage
• [15:48] – Interview with Maurice Obstfeld begins
• [16:04] – Assessment of the impact: “a mixed bag”
• [17:37] – Effects disguised by other economic factors
• [20:13] – Why tariff revenue is not a real fiscal win
• [22:02] – Tariffs as regressive tax, historical context
• [25:05] – Prognosis: More inflation, possible permanence of tariffs
• [27:13] – CPI data, impact on major retailers, ultimate consumer burden

Memorable Moments

• Mark Mahaney describes his own son missing a college exam due to the AWS outage, reinforcing the pervasiveness of AWS infrastructure. (04:21)
• Ed explains how supposed record government surpluses are actually “accounting blips,” not true fiscal wins. (25:41)
• Maurice Obstfeld’s blunt summary: tariffs are “just turning the clock back more than 100 years” in terms of American tax and trade policy. (24:03)

Takeaways

• AWS’s dominance means its failures ripple everywhere—and the outage has put a spotlight on both Amazon's vulnerability and its central role.
• Amazon’s AI “miss” has been the main drag on stock sentiment, but a strong return to cloud growth could flip the narrative.
• New tariffs have barely met any of their intended goals while quietly extracting hundreds of dollars annually from ordinary Americans, fueling stubborn inflation in the process.
• Much-touted government fiscal “wins” are largely accounting tricks; the true cost of tariffs is regressive and enduring.
• The next months’ inflation and earnings reports will be key to seeing whether these trends continue or worsen.

Useful for Listeners Who Haven’t Tuned In

This episode provides a sharp, candid look at how real-time events and policy shifts are reshaping the tech and consumer economies. Whether you care about FAANG stocks, worry about inflation, or just want to understand the deep currents shaping the news, this recap lets you keep pace with the conversation—and the stakes behind it.

For listener questions or comments, reach out to markets@profgmedia.com.