1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is a multifaceted company primarily known for its extensive operations in the internet retail industry. It started as an online bookstore but has evolved into the largest online retailer globally, offering a vast array of products. This includes clothing, electronics, groceries, furniture, and much more.
The company focuses heavily on providing a convenient shopping experience. This includes personalized recommendations based on user behavior, competitive pricing, and fast shipping options like same-day or next-day delivery. Beyond retail, Amazon.com, Inc. (NASDAQ:AMZN) operates AWS, which provides cloud computing services to businesses of all sizes. This includes data storage, computing power, and machine learning capabilities.
The third quarter of fiscal 2024 ended with net sales up 11% year-over-year at $158.9 billion. Sales growth was most prominent in the AWS segment which grew 19% year-over-year followed by International segment sales growing 12% during the same time.
What’s more impressive about Amazon.com, Inc. (NASDAQ:AMZN) is its free cash flow generation capabilities. The company generated $47.7 billion in free cash flow on a trailing twelve-month basis ending September 30, 2024. During the third quarter, the free cash flow grew 123% year-over-year.
Apart from lucrative cash flow generating capabilities one of the competitive edge that the company holds is its progress with artificial intelligence. During its third-quarter earnings call, management announced the launch of several new AI features including Rufus, an AI shopping assistant, AI Shopping Guides, and Project Amelia, an AI assistant for sellers.
Amazon.com, Inc. (NASDAQ:AMZN) is the best internet retail stock to buy now and was held by 308 hedge funds in Q2 2024 as per Insider Monkey’s database.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ: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 a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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