1. Amazon.com Inc. (NASDAQ:AMZN)
10-Year Revenue CAGR: 22.14%
Number of Hedge Fund Holders: 308
Amazon.com Inc. (NASDAQ:AMZN) offers a selection of products, including books, electronics, groceries, and more as an e-commerce retailer. It also provides cloud computing services through Amazon Web Services (AWS), streaming services like Prime Video and Music, and other digital content. Additionally, It has ventures in logistics, advertising, and artificial intelligence.
AWS revenue for the company improved 18.8% in Q2 2024 on a year-over-year basis. The overall net revenue was also strong, jumping 10.12% year-over-year, fueled by a healthy $14.7 billion in operating income. It’s doubling down on AI. The company has invested $30.5 billion in AI this year and plans to increase spending further, reflecting the growing demand for both generative and non-generative AI.
The company recently partnered with Databricks in a 5-year deal to create a data warehouse startup that utilizes its Trainium AI processors. This collaboration aims to help businesses develop AI models faster and at lower costs by leveraging the power of Amazon’s custom AI chips. It also introduced a new Kindle device with a color display, the Kindle Colorsoft. This is a significant update as the company has been criticized for lacking a color e-reader. The Kindle Scribe now has AI features for summarizing notes, and the Kindle Paperwhite has been slimmed down while maintaining its long battery life.
Amazon.com Inc. (NASDAQ:AMZN) is investing heavily in AI, demonstrating its commitment to staying at the forefront of this rapidly evolving field. This focus on high-growth areas positions it for continued dominance in the e-commerce and technology landscape. Its diversified business model also positions it for continued success.
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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