1. Amazon.com (NASDAQ:AMZN)
Number Of Hedge Fund Investors: 338
Steven Dickens from HyperFRAME Research was recently asked about Amazon.com (NASDAQ:AMZN) during a latest program on Schwab Network. He mentioned how Amazon.com (NASDAQ:AMZN) is quickly integrating DeepSeek with its systems and launching new models.
“Last year, just after Thanksgiving, the team graciously gave me a deep dive. This week, we went deep on everything AWS and AI. They’ve got these Nova models—six Frontier models, four for reasoning, and two for content creation—doing fantastically in the benchmarks. So, I think there’s a play there to put AWS in that model discussion. But then they’ve also got this “bring your own large language model” approach with Bedrock. The team demoed what they’re doing with DeepSeek running on AWS. According to them, they’ve now got two or three U.S. companies with those systems in production. They were up within the week. As soon as DeepSeek came out over the weekend, they were demoing it to me that Friday—running DeepSeek on AWS’s Bedrock.”
Despite weak guidance, Amazon could easily surpass $100 billion in operating income within the next two years because of its AWS growth engine. In the latest reported quarter, Amazon Web Services sales jumped 19% and operating profit for the segment jumped 62% in 2024 on an annual basis.
The market is currently forecasting $6.27 per share in profits this year (a 13% YoY growth) and $7.59 per share next year (a 21% YoY growth). Amazon’s stock is priced at a profit multiple of 30.2x. This valuation might look rich, but when we incorporate AWS growth, the stock seems to have more upside potential.
Alger Spectra Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a renowned online retailer and leader in cloud computing. The company’s Amazon Web Services (AWS) division offers utility-scale cloud solutions that support corporate America’s digital transition. During the quarter, Amazon’s shares contributed to performance as the company reported better-than-expected fiscal third-quarter results, with revenues and earnings beating analyst estimates. Operating margins expanded to 11%, driven by efficiency gains in logistics and robust AWS performance. Notably, AWS revenue growth accelerated during the quarter, along with recording its highest-ever operating margin of 38.1%, driven by easing cloud cost optimizations, renewed workload migrations, and an increasing contribution from AI workloads. On their earnings call, management highlighted plans to increase capital expenditures to enhance their technology infrastructure, catering to the surging demand for AI-driven computing.”
While we acknowledge the potential of Amazon.com (NASDAQ:AMZN), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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