1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 339
Morningstar has assigned a wide moat rating to Amazon.com, Inc. (NASDAQ:AMZN), which stems from network effects, intangible assets, cost advantages, and switching costs. As per the firm, the company continues to disrupt the traditional retail industry for over 2 decades while, at the same time, has been emerging as a frontrunner in infrastructure-as-a-service provider through Amazon Web Services. Traditional retailers continue to invest significantly in technology in a bid to keep pace. Morningstar believes that the pandemic has ramped up this change, and considering Amazon.com, Inc. (NASDAQ:AMZN)’s technological prowess, relationship with consumers, and huge scale, the company has widened its lead, which can lead to economic returns well in excess of the cost of capital for several years.
AI integration in AWS can result in new, high-value services that can help Amazon.com, Inc. (NASDAQ:AMZN) stand apart. With enterprises adopting AI technologies, AWS’ AI-focused offerings can fuel higher-margin revenue growth and bolster its market position. Collectively, these factors are expected to help Amazon.com, Inc. (NASDAQ:AMZN) sustain its growth trajectory over the next 2-3 decades. Fred Alger Management, an investment management company, released its Q1 2025 investor letter. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN) is a global technology company renowned for its expansive e-commerce platform, offering a vast array of products and services to consumers worldwide. Beyond online retail, Amazon generates revenue through its cloud computing division, Amazon Web Services (AWS), which provides scalable computing solutions to businesses and governments; subscription services like Amazon Prime, offering members benefits such as streaming content and expedited shipping; and advertising services that enable brands to reach targeted audiences on its platform. During the quarter, shares detracted from performance due to concerns surrounding U.S. President Donald Trump’s impending tariffs on imported goods, raising fears about increased operational costs and weaker consumer spending. Additionally, management’s lower-than expected fiscal first-quarter sales forecast and substantial planned investments—including a $100 billion commitment to AWS and AI infrastructure in 2025—further pressured sentiment regarding near term profitability. Despite the near-term share price weakness, we believe Amazon’s fundamentals remain strong given its diversified business model, continuous innovation, and dominant positions in high-growth areas like e-commerce and cloud computing.”
While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for a deeply undervalued AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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