1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Investors In Q1 2024: 302
Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest eCommerce provider, which allows it to command a substantial market. Its market size means the firm has to keep its focus on maintaining efficiency metrics to ensure that it does not lose market share to emerging competitors. Some of the metrics that Amazon.com, Inc. (NASDAQ:AMZN) needs to keep its eye on are increasing the number of day deliveries, reducing costs, optimizing its fulfillment network, and improving engagement with sellers to provide them with added value. Additionally, Amazon.com, Inc. (NASDAQ:AMZN) is also one of the biggest cloud computing providers in America. With considerable resources at its disposal, the firm has a robust semiconductor design division, and its partnership with AI firm Anthropic provides it with runway to make more moves in the AI sphere – particularly when it comes to developing AI chips to reduce dependence on NVIDIA’s products. Finally, Amazon.com, Inc. (NASDAQ:AMZN) also relies on its vast user base to run advertisements for its customers, and like the rest of its business divisions (eCommerce and Cloud) this segment is also vulnerable to any economic slowdown that affects business spending.
Since cost control is one of the lesser talked about aspects of Amazon.com, Inc. (NASDAQ:AMZN)’s business success, here’s what Alphyn Capital had to say in its Q1 2024 investor letter:
My previous analysis (Q4 2022 letter) highlighted the significant growth in Amazon’s fulfillment expenses since 2015, masking the true earnings potential of its retail business. Though initially costly, the recent restructuring into regional fulfillment centers has yielded lower fulfillment costs and faster shipping times, leading to increased purchase frequency, especially among Prime members.
Following the regionalization effort, over the last couple of years, Amazon prioritized cost control and reduced capital expenditures. At a high level, the North American segment’s operating income swung from a $240 million loss in 2022 to a healthy $6.4 billion profit (6% margin) in 2023. Combined with continued strength in AWS and advertising, Amazon’s free cash flow (as reported, excluding equipment finance leases and principal repayments) surged from negative $13 billion to positive $36 billion.
Amazon stands out for pioneering the public market strategy of prioritizing long-term growth through sustained low margins and reinvestment, with the ability to later “turn on the taps” for profit. While many public tech companies have tried to replicate this approach, Amazon’s scale and execution capabilities make it one of the few that have successfully pulled it off.
Even though AMZN is naturally the favorite hedge fund consumer cyclical stock pick, our conviction lies in the belief that some 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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Disclosure: None.
