1. Amazon.com Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com Inc. (NASDAQ:AMZN) is an e-commerce giant that sells almost anything you can imagine, from books to electronics to groceries. Beyond shopping, it also has a powerful cloud computing service, Amazon Web Services (AWS), that businesses use to store and process data. Plus, it offers streaming services for movies and TV shows and even makes its own devices like smart speakers and tablets.
The company recently released its Q3 2024 earnings, recording a strong sales improvement of 11.04% as compared to the year-ago period. Total revenue generated was $158.88 billion, with an earnings per share value of $0.43. The North American stores saw a 9% sales increase, while international stores grew by 12%.
There has been impressive growth in its advertising segment particularly, with an 18.8% year-over-year revenue improvement due to a vast customer base, targeted offerings, and ability to measure campaign effectiveness. AWS revenue was also up 19.1%, as the company continues to innovate and develop its stronghold in the cloud computing market.
While consumers are cautious, Amazon.com Inc. (NASDAQ:AMZN) is thriving through a combination of customer-centric strategies, a booming advertising business, and continued dominance in cloud computing with AWS. All of these factors together position this company as a leader in its industry.
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.”
As we acknowledge the growth potential of Amazon.com Inc. (NASDAQ:AMZN), our conviction lies in the belief that AI stocks hold great promise for delivering high 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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