In this article, we will look at the 10 Best E-Commerce Stocks To Invest In.
An Overview of the E-Commerce Industry
According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.
An increase in consumer confidence, after a period of sluggish growth, has been a key catalyst in improving the position of the e-commerce industry. On July 30, Reuters reported that the consumer confidence index, in the US, increased to 100.3 in July after it was revised down to 97.8 in June. Previously, experts predicted the index to fall to 99.7 after reaching 100.4 basis points. Chief Economist, Dana Peterson, suggested that while consumers remain resilient they are concerned over rising prices and interest rates. However, despite an uncertain macroeconomic environment, e-commerce companies are taking advantage of the current consumer sentiment by reducing prices. Companies like Target have also revised their profits for FY 2024 as lowered prices have drawn more customers.
To shed light on the state of online retail, US Mastercard Economics Institute Chief Economist, Michelle Meyer appeared in an interview on Yahoo Finance on August 16. Online retail sales went up by 8.2% in July, compared to a 2.9% growth rate in July 2023. She further explains that personal finances, time efficacy, and the overall state of the labor market impact which sites consumers choose to shop from. Meyer also added that in the past quarter, the average individual in the United States saw an appreciation in wealth, which has a positive bearing on consumer spending and therefore online retail.
What Does the Competitive E-Commerce Landscape look like?
The future of e-commerce is unpredictable. Bans on products from China, questions about cheap labor, criticism over fast fashion, and the increasing use of technology are different forces shaping the industry. In the first quarter of 2024, the US pushed to ban TikTok in the country, which mongered fear among Chinese e-commerce sites such as Shein and Temu. In April, law-making agencies in the US suggested a ban on Temu over labor rights infringement. Moreover, on August 21, Shein sued Temu over copyright infringements. The former suggested that Temu stole the company’s designs and trade secrets resulting in Temu losing money over every sale. Despite such, the founder of Temu, Colin Huang, stands as the wealthiest person in China with a net worth of $51.4 billion, as of August 22. You can also take a look at the best Chinese stocks to buy now.
On the other hand, e-commerce sites in the United States are trying to win against their competitors using advanced technology. Walmart, for instance, launched a generative AI search tool that customers can prompt and get a list of ideal products or items needed. For example, a customer who wants to throw a birthday party, but is unaware of the items needed, could use the search tool to save time. Similarly, Amazon launched Rufus, an AI shopping assistant, earlier this year. Rufus is capable of personally assisting a shopper and helping them find the right products. While we discuss technology, we cannot ignore eBay’s magical listing tool for sellers backed by artificial intelligence. The tool can analyze images, categories, and titles to curate product descriptions, prices, and shipping costs. You should also read our piece on the latest AI news and analyst ratings you should not miss.
As the e-commerce industry grows, it is crucial to know which companies are pioneering the race. With that, let’s take a look at the 10 best e-commerce stocks to invest in. You can also read our piece on the best advertising stocks to buy according to short sellers.
Photo by CardMapr.nl on Unsplash
Our Methodology
To compile the list of the 10 best e-commerce stocks to invest in, we looked at holdings of e-commerce ETFs and screened for Internet Retail companies on the Finviz stock screener. We sorted our screen by market cap and looked at the 20 largest e-commerce companies. We picked stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Note: All pricing data is as of August 22.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best E-Commerce Stocks To Invest In
10. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 38
eBay Inc. (NASDAQ:EBAY) ranks 10th on our list of the best e-commerce stocks to invest in. eBay Inc. (NASDAQ:EBAY) is a multinational e-commerce company headquartered in the United States. Customers on eBay can find a range of products such as electronics, cars, fashion products, clothing items, and collectibles.
eBay Inc. (NASDAQ:EBAY) sells in more than 200 countries preventing overseas shipping, customs, returns, and refunds. Customers are not required to pay an international selling fee on international shipping either. Currently, eBay has over 135 million active buyers and almost 19 million sellers, of which close to 7 million are based in the United States.
The use of technology and artificial intelligence has helped eBay retain its buyers. The company uses features such as magical listing, enhanced personalization, vertical browsing pages, and improved filtering to improve the shopping experience and reduce the time it takes to shop.
Overall, eBay Inc. (NASDAQ:EBAY) is focused on sustainable and consistent growth. In the second quarter of 2024, the company reported an increase in its gross merchandise value (GMV), by 1% year-over-year, to $18.4 billion. Revenue reached $2.57 billion, up by 2% year-over-year.
While macroeconomic headwinds have been a deterrent to the company, it is reportedly expected to log $18.2 billion in GMV and $2.56 billion in revenue, in Q3 2024, up by 1% and 3% year-over-year, respectively.
Analysts are bullish on EBAY and their 12-month high price target of $65 points to an 11% upside from current levels. 38 investors were bullish on EBAY at the end of Q2 2024, with total stakes amounting to $924.63 million. As of June 30, Harris Associates was the largest shareholder with a position worth $250.72 million.
EBAY is attractive at current levels. The stock is trading 11.8 times its forward earnings, a discount of 23% from its sector P/E. Analysts expect earnings to expand by 14% this year.
9. Maplebear Inc. (NASDAQ:CART)
Number of Hedge Fund Holders: 56
Maplebear Inc. (NASDAQ:CART), commonly referred to as Instacart, is one of the biggest online retail companies in the United States. The company was founded in 2012 and now serves households in the United States and Canada. Instacart has more than 1,500 retailers and over 85,000 stores, making up 85% of the grocery market in the United States.
Households from 14,000 cities across North America can choose from 1 billion products and grocery items shelved on Instacart. Not only does the platform have a huge product variety, but Instacart also boasts unbelievably fast delivery times. 25% of priority orders were delivered in 30 minutes or less. In the second quarter of 2024, the company logged $8.2 billion in gross transaction value, the average order value multiplied by the total transactions made, up by 10% year-over-year. During the same period, Instacart was used by more than 25 million people and overall orders increased by 7%, year-over-year, to reach 70.8 million.
Instacart is focused on expanding its offerings. In the second quarter of 2024, the company partnered with Uber Technologies to deliver food to households through the Instacart app. The company also launched e-commerce storefronts for 30 more retailers and powered websites for over 600 retail banners. Lastly, Maplebear Inc. (NASDAQ:CART) partnered with HVN Travel Group and PetSmart to offer a greater product variety to its customer base.
Maplebear Inc. (NASDAQ:CART) is positioned to report consistent financial results as it expects its gross transaction value to reach at most $8.25 billion in Q3 2024, exhibiting a year-over-year growth rate of 10%. The company attributes its GTV growth to growing orders, which is a consistent factor for its growth.
Analysts are bullish on CART and their 12-month median price target of $45 points to a 34% upside from current levels. Overall, 56 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $2.08 billion. As of June 30, D1 Capital Partners was the largest shareholder with a position worth $929 million.
8. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 59
JD.com, Inc. (NASDAQ:JD) ranks eighth on our list of the best e-commerce stocks to invest in. Jd.com, commonly referred to Jingdong, is one of the largest e-commerce companies in China. JD.com, Inc. (NASDAQ:JD) also provides services in the logistics, cloud, health, industrial, and property industries.
Jd.com, Inc. has over 1,600 warehouses and currently serves more than 200 countries and regions worldwide. Its online marketplace houses millions of products, such as appliances, devices, computers, household products, and clothing. In the second quarter of 2024, JD.com, Inc. (NASDAQ:JD) forged strategic partnerships with popular brands including Xiaomi, Lenovo, and Oppo to automate its supply chain and onboarded Inditex and MONCLER to diversify its product base.
While declining consumer spending has decreased the average order size, JD’s retail segment logged $35.37 billion in revenue, up by 1.5% year-over-year, in Q2 2024. Overall order volume and shipping frequency both grew by double digits during the quarter, indicating a high customer acquisition rate.
JD.com’s (NASDAQ:JD) value proposition lies in low prices, driven by subsidies, and a strong e-commerce ecosystem supported by its logistics and technological capabilities.
Analysts are bullish on JD and their 12-month median price target of $40.1 points to a 49% upside from current levels. 59 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $1.34 billion. As of June 30, Alkeon Capital Management was the largest shareholder with a position worth $171.48 million.
JD is attractive at current levels. The stock is trading 7.3 times its forward earnings, a discount of 53% from its sector P/E. Analysts expect earnings to expand by 19% this year.
Ariel Investments Ariel Global Fund stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
7. Coupang, Inc. (NYSE:CPNG)
Number of Hedge Fund Holders: 62
Coupang, Inc. (NYSE:CPNG) is an e-commerce company based in Seoul, South Korea, that sells beauty, skincare, snacks, electronics, and clothing items on its platform, Coupang Marketplace. The online retail company has a solid presence in South Korea, with a market share of 25%.
Coupang’s e-commerce infrastructure is noteworthy. The company has more than 100 unique fulfillment centers that meet the needs of 70% of the South Korean population living within a 7-mile radius. The company has a growing fleet of electric vehicles, Coupang Cars, that enable faster deliveries, accounting for 50% of the company’s fleet in Jeju, South Korea.
Technology is central to the company’s success. Coupang, Inc. (NYSE:CPNG) uses artificial intelligence to enable fast deliveries, manage volume order production, and implement system coordination. Its factories are automated so that items are delivered to workstations within 2 minutes or less, reducing employee workload by 65%.
Coupang’s e-commerce revenue increased by 13% year-over-year and active customers by 12% in the fiscal second quarter of 2024. Apart from its strong e-commerce infrastructure, Coupang’s (NYSE:CPNG) plethora of membership and loyalty programs with various benefits make it a customer favorite, evident from its 21 million strong customer base. While the company continues to experience customer growth, its priority lies in retaining existing customers.
Coupang’s (NYSE:CPNG) competitive edge lies in its efficiency gains and customer retention which can be attributed to its increasing investment in technology, automation, and customer benefits.
Analysts are bullish on CPNG and their 12-month median price target of $26.5 points to a 16% upside from current levels. Overall, 62 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $4.3 billion. As of June 30, Maverick Capital was the largest shareholder with a position worth $612.85 million.
Baron Funds stated the following regarding Coupang, Inc. (NYSE:CPNG) in its first quarter 2024 investor letter:
“We also added to our position in the Korean e-commerce platform, Coupang, Inc. (NYSE:CPNG), as the company continues to execute at a high level, reporting strong financial results, with accelerating revenue growth – revenues were up 20% year-over-year in constant currency in the fourth quarter, 29% excluding the impact from Coupang’s Fulfillment and Logistics accounting change, driven by growth in its number of customers count (up 16% year-over-year), growth of its loyalty Wow members (up 27% year-over-year) and growth in spending by existing cohorts (with every cohort, including those who have used the platform for a long time, growing at least 15% year-over-year), which suggests continued wallet share gains for the company. While Coupang continues to gain market share, its attractive unit economics are beginning to appear in results, with adjusted EBITDA margins of its commerce segment reaching 7.1% in the fourth quarter (up 190bps year-over-year). Coupang is utilizing the growing profits from commerce to invest in emerging offerings such as Fulfillment and Logistics by Coupang (FLC), expansion into Taiwan (with revenues up 2 times in the last six months) and Coupang Eats, its food delivery network, which saw order volume increase by 2 times as well in the last nine months. In the last week or so, Coupang also announced a material 58% Wow membership price hike, which should flow through nicely to the bottom line, sending the stock higher by close to 20%.”
6. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 63
Sea Limited (NYSE:SE) is one of the best e-commerce stocks to invest in. The technology company is based in Singapore and specializes in three segments including e-commerce, digital financial services, and digital entertainment. The company first launched its e-commerce platform, Shopee, in Southeast Asia and Taiwan in 2015. Shopee is now functional in 8 countries including Singapore, Malaysia, Thailand, Indonesia, Taiwan, and Korea.
Consumers can use Shopee to secure fashion, makeup, and home products among other daily items. It is one of the fastest-growing e-commerce platforms in the region and makes up two-thirds of the company’s revenue. In Q2 2024, Sea Limited’s (NYSE:SE) e-commerce revenue grew by 34% to reach $2.8 billion, exceeding initial expectations of $2.68 billion. By the end of this year, the company expects sales from Shopee to expand by more than 20%, revised upwards from a late teens estimate made earlier this year.
Sea Limited (NYSE:SE) is improving its services to excel in a competitive e-commerce landscape. SPX, also referred to as Shopee Xpress, is an integrated logistics service by Shopee that delivered over 70% of orders placed in Asia within 3 days in Q2 2024. During the same quarter, the company also launched a “no questions asked return” program. This policy pushed buyers to manage order returns as efficiently as possible, oftentimes within 24 hours. Better return policies also increase the average order basket size by over 10% from Malaysian buyers.
Overall, during the second quarter of 2024, gross orders on Shopee increased by 40%, and gross merchandise value went up by 29%, year over year. Sea Limited (NYSE:SE) has a positive outlook on its position in the industry, suggesting it is stable and expects profits to grow consistently over the next few quarters.
Analysts are bullish on SE and their 12-month median price target of $90 points to a 10% upside from current levels. Overall, SE was held by 63 hedge funds at the close of Q2 2024 with total stakes amounting to $3.54 billion. As of June 30, Tiger Global Management LLC was the largest shareholder with a position worth $1.15 billion.
SE is currently trading at 42 times this year’s earnings estimate, higher than the sector’s forward P/E of 13. While there’s a premium here, the company’s growth trajectory cannot be ignored. Analysts expect earnings to grow 224% this year to $0.81 per share, and by 672% to $1.93 per share in 2025, from 2023.
Lakehouse Capital’s Lakehouse Global Growth Fund stated the following regarding Sea Limited (NYSE:SE) in its April 2024 investor letter:
“At the portfolio level, the biggest contributor to performance during the month was Sea Limited (NYSE:SE) (+18.2%), which performed well as both Shopee and its primary competitor, TikTok Shop, raised take-rates meaningfully across several countries during the quarter. This is a noteworthy development as we are now starting to see mounting evidence of more rational competitive behaviour from the dominant players in Southeast Asia’s e-commerce market, which in turn,signals a more favourable industry structure lay ahead.”
5. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 84
MercadoLibre, Inc. (NASDAQ:MELI) is a prominent online marketplace founded in Argentina and headquartered in Uruguay. The company was founded in 1999 with the vision of becoming the largest e-commerce company in Latin America. Today, MercadoLibre, Inc. (NASDAQ:MELI) is present in 18 countries and has over 65 million buyers and 12 million sellers.
Consumers on MercadoLibre can shop for consumer electronics, automotive accessories, and home appliances. Merchants on the other hand can create a single account to sell to multiple markets. MercadoLibre, Inc. (NASDAQ:MELI) is one of the largest e-commerce companies in Latin America and reported gross merchandise value worth $45 billion in 2023. The company has grown its revenue at a compound annual growth rate of 28% between 2016 and 2023.
The company’s strong e-commerce network is its economic moat. In 2023, MercadoLibre delivered 1.38 billion items, and 76% of them were delivered within 48 hours in the last quarter of 2023. Between 2019 and 2023, the company increased buyer engagement by 468%. The average number of items purchased per person on its platform grew to 7.1 by the end of 2023 from 4.4 in 2019.
Overall, the company’s share price has grown at a compound annual growth rate of 33% over the past 10 years. The company expects e-commerce penetration to rise in major markets including Latin America, China, the United States, and the United Kingdom.
Analysts are bullish on MELI and their 12-month median price target of $2,112 points to a 5% upside from current levels. Overall, MELI was held by 84 hedge funds at the close of Q2 2024 with total stakes amounting to $4.63 billion. As of June 30, Generation Investment Management was the largest shareholder with a position worth $822 million.
MELI is currently trading at 56 times this year’s earnings estimate, higher than the sector’s forward P/E of 15. While there’s a premium here, the company’s growth trajectory cannot be ignored. Analysts expect earnings to grow 83% this year to $36 per share, and by 141% to $47 per share in 2025, from 2023.
Lakehouse Capital stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its May 2024 investor letter:
“The Fund’s largest position, Buenos Aires based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI), reported a robust result that once again came in ahead of analyst expectations. Net revenue grew 30% year-on-year in U.S. dollar terms to US$4.0 billion while operating margins came in at 12.0%, providing a healthy balance of growth and profitability. Its marketplace business proved resilient, with strength in Brazil and Mexico more than enough to offset weakness in Argentina, which contacted by roughly a third due to weak macroeconomic conditions exacerbated by the 50%-plus devaluation of the Argentine Peso in December 2023. Whilst the economic situation in Argentia remains severe, we are comfortable with the risk as not only has management proved very adept at handling the challenges to date, but post the devaluation, the risk is meaningfully reduced as Argentina now only contributes 13% of the company’s total operating income. Overall, gross merchandise value still grew at 20% year-on-year to $11.4 billion and we continue to see significant opportunities ahead given the relatively nascent penetration of e-commerce in the region.”
4. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is one of the biggest e-commerce companies to invest in. The company is a multinational e-commerce group that owns Temu and Pinduoduo, two online retail sites, and holds a 20% market share in China’s e-commerce industry.
Pinduoduo is one of the most prominent online agriculture retail platforms in China. Temu, on the other hand, is an e-commerce platform in the United States and Europe that sells clothing, home decor, beauty, and handmade items.
PDD Holdings’s (NASDAQ:PDD) business model is such that it facilitates bulk buying. Customers can directly haul goods in bulk from manufacturers, eliminating intermediaries, and reducing costs. Temu, known for its notoriously low-priced products and fast deliveries, has partnerships with major distributors such as UPS, FedEx, and USPS to ensure all deliveries are made quickly and securely.
According to HSBC, the Chinese e-commerce market was valued at $155 billion in 2019 and is expected to grow to $500 billion by the end of 2025 from a valuation of $350 billion in 2023. Over 60% of the Chinese population uses online retailers to shop and 37% of retail spending in the country is executed via e-commerce channels. While the Chinese market is saturated, the markets in the US and Europe are attractive given that online shopping accounts for 22% of retail spending in the US and 16% in Western Europe.
PDD Holdings’s (NASDAQ:PDD) presence in China warrants its position as one of the best e-commerce stocks to buy. With a 20% market share in the country and a growing platform in Europe and North America, PDD’s Temu is set to become one of the most used platforms in the world. Over the past year, PDD’s growth has been exemplary. In the first quarter of 2024, PDD Holding’s total revenue reached RMB 86.8 billion, a 131% increase year-over-year.
Overall, 86 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $8.1 billion. As of June 30, GQG Partners was the largest shareholder with a position worth $1.44 billion.
PDD is attractive at current levels. The stock is trading 11 times its forward earnings, a discount of 29% from its sector P/E, and analysts expect earnings to expand by 84% this year and 139% in 2025, from 2023.
Baron Funds stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its fourth quarter 2023 investor letter:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”
3. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Alibaba Group (NYSE:BABA) is a technology and internet retail company that operates e-commerce sites that serve both consumers and small business owners. In addition to e-commerce, Alibaba Group (NYSE:BABA) is also involved in cloud computing, logistics, digital media, and entertainment.
Merchants and small business owners use Alibaba.com to buy products such as clothing items, accessories, and shoes for reselling. AliExpress, on the other hand, is a retail site for mass consumers who can purchase all sorts of items such as appliances, office equipment, home improvement, and sports equipment, to name a few. It has over 150 million users and is present in 190 countries.
Alibaba Group (NYSE:BABA) is among the best e-commerce stocks to buy now and we say that because its platforms are used by more than 800 million people worldwide. It has a 40% share in the Chinese e-commerce market, as per estimates by the DBS Bank in Hong Kong. In the first quarter of 2024, the group reported revenue worth $30.73 billion, up 7% year-over-year. Its global e-commerce segment, Alibaba International Digital Commerce Group (AIDC), reported revenue worth $3.8 billion, up by 45% year-over-year. Combined orders for AIDC’s marketplaces expanded by 20%.
One may ask how Alibaba Group is managing to increase order volumes amid fierce market competition. The answer is simple, providing premium customer shopping experiences at the lowest price possible. The company’s revenue was driven by its new strategy, AliExpress Choice, accounting for 70% of orders placed on AliExpress. Choice is a premium e-commerce service offered by AliExpress that allows shoppers to source products directly from factories, shrinking the supply chain. Customers placing orders through Choice enjoy greater control over product selection, price, and shipping.
Despite macro headwinds and geopolitical turmoil in the country, analysts are bullish on the stock, and their 1-year median price target of $111.26 points to a 33% upside from current levels. Overall, BABA was held by 91 hedge funds at the close of Q2 2024 with total stakes amounting to $3.81 billion. As of June 30, Appaloosa Management LP was the largest shareholder with a position worth $756 million. Alibaba’s (NYSE:BABA) e-commerce segment is part of an industry that is expected to reach $18.81 trillion in 2029 from $8.8 trillion in 2024 at a compound annual growth rate (CAGR) or 15.8%.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)”
2. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart Inc. (NYSE:WMT) is one of the biggest retail companies in the world that operates retail outlets, wholesale units, and e-commerce sites in more than 20 countries serving over 240 million customers every week. The company’s e-commerce platform provides services to mass consumers, low-income customers, and small business owners. Walmart entered the e-commerce space in 2000 and reported $100 billion in e-commerce sales in the fiscal year 2024, up from $73 billion in FY 2022. Walmart Inc. (NYSE:WMT) is also a well-known brick-and-mortar retailer with 10,500 stores globally.
Sellers or small business owners sell all kinds of products on the Walmart Marketplace including staples, toys, and electronics. On the other hand, customers use it to purchase clothes, appliances, and furniture.
Walmart Inc. (NYSE:WMT) is a top e-commerce platform in the US and has over 255 million weekly users. The company currently operates 210 distribution centers and has a private fleet of 9,000 tractors, 80,000 trailers, and 11,000 drivers, all of which make quick deliveries possible. In the past 12 months, within the US, Walmart delivered 4.4 billion items on the same day or the next day, and 30% were delivered within three hours.
Walmart’s (NYSE:WMT) strengths are not limited to its stringent supply chain, but also its strong customer network. To enhance customer connection, the company launched the Walmart App, Curbside Pickup, and Built for Better, all of which facilitate consumers to buy products with ease.
The company’s journey to customer-centric innovation is not recent. In 2022, Walmart Inc. (NYSE:WMT) launched its Text to Shop AI tool to help customers add items to their cart by just chatting with a bot. Fast forward to FQ1 2025, the company launched a generative AI-powered product search tool and a data analytics platform allowing customers to shop more effectively and receive intuitive product recommendations based on their likes and dislikes.
Walmart’s e-commerce footprint is increasing, as evidenced by a 36% growth in sellers on its marketplace in the fiscal first quarter of 2025. As the company continues to integrate AI and make its platform more personalized for users, it can gain a higher share.
Analysts are bullish on WMT and their 12-month median price target of $81 points to an 8% upside from current levels. Overall, WMT was held by 95 hedge funds at the close of Q2 2024 with total stakes amounting to $9.19 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $3.08 billion.
WMT is currently trading at 30 times this year’s earnings estimate, higher than the sector’s forward P/E of 18. While there’s a premium here, analysts expect earnings to grow 21% this year to $2.45.
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is one of the largest e-commerce and technology companies in the world. Amazon, functional in more than 20 countries, entered the e-commerce space in 1994 and now ships to more than 100 countries and regions. Amazon’s (NASDAQ:AMZN) customers include small to medium-sized businesses and mass consumers. Other than e-commerce, the company also specializes in cloud services, artificial intelligence, and digital streaming.
Amazon.com, Inc. (NASDAQ:AMZN) is one of the largest e-commerce companies in the United States, holding 37.6% of e-commerce sales, the highest among all its competitors. It has a unique business model, under which its retail segment in North America and Internationally made $352.8 billion and $131.2 billion in revenue respectively, for the fiscal year ended 2023 (inclusive of advertising and subscription revenue).
The company’s economic moat lies in its strong e-commerce infrastructure that allows consumers to meet all their shopping needs under one roof. The website, Amazon.com, is optimized such that customers can make purchases in less than 3 minutes and choose from over 300 million products including electronics, clothing, home appliances, and furniture. New tech features such as Amazon Lens and the Amazon AI shopping assistant have also enabled faster shopping.
The company’s delivery times are also exceptional. In March this year, 60% of prime members received their orders on the same day or the next day in the largest metro areas in the United States. On July 30, Amazon (NASDAQ:AMZN) reported that, so far this year, the company has delivered almost 5 billion items on the same day or the next globally, up by 30% year-over-year.
In 2023, brand owners grew their sales by over 22%, and over 4.5 billion items were sold in the US. Overall, Amazon expects consumer activity to grow in 2024 as it spends more to improve its e-commerce infrastructure and simplify the customer journey.
Analysts are bullish on AMZN and their 12-month median price target of $220 points to a 22% upside from current levels. Overall, AMZN was held by 308 hedge funds at the close of Q2 2024 with total stakes amounting to $65.85 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $8.46 billion.
Diamond Hill Capital’s Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
While we acknowledge the potential of AMZN to grow, our conviction lies in the belief that 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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