1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Barton Crockett from Rosenblatt, who has a Buy rating on Amazon.com Inc (NASDAQ:AMZN), recently talked to CNBC about the company and explained his concerns and outlook on the company’s cloud business.
“I do think that AWS hasn’t really been accelerated by AI yet, but that could happen—probably will happen. They have been losing share in AI, I think, to Azure and Google, but I think that can improve as they enhance their capabilities. The biggest kind of support for Amazon right now has been this tremendous margin story. It’s almost like whatever happens on the top line, the margins have been so strong that it’s an incredibly powerful, compelling element to that story, and that almost outweighs the rest of it.”
Amazon.com Inc (NASDAQ:AMZN) threw it out of the park with its latest quarterly results amid strong Cloud growth. Amazon Web Services has generated $27.5 billion in revenue, marking a 19% year-over-year increase. The segment’s operating income is expanding at nearly 2.5 times the rate of its revenue growth, boosting Amazon.com Inc (NASDAQ:AMZN)’s overall operating income. At this pace, AWS is on track to deliver $110 billion in annualized revenue. If it maintains its ~20% growth rate, AWS could reach $125-130 billion in revenue in FY 2025.
For the ongoing quarter, Amazon.com Inc (NASDAQ:AMZN) expects revenue between $181.5 billion and $188.5 billion, implying growth of up to 11%. Amazon.com Inc (NASDAQ:AMZN)’s stock currently trades at a forward P/E of 32.9, higher than the big tech average of 25.5. If Amazon.com Inc (NASDAQ:AMZN) grows its earnings per share (EPS) by an average of 25% annually over the next three years, it could achieve an EPS of around $9.25 by FY 2027 (up from an estimated $4.74 in FY 2024). Applying a 35x P/E ratio in line with Amazon.com Inc’s (NASDAQ:AMZN) historical average suggests a fair stock value of over $300. The primary catalyst for this target would be AWS’s robust operating income growth.
Parnassus Core Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) ended the quarter slightly down, so our underweight position contributed to relative return. We added the stock after the share price declined significantly, and the timing of the purchase proved beneficial: after we initiated the position, shares rebounded strongly as sentiment around the consumer improved.”
While we acknowledge the potential of Amazon.com (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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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