We recently published a list of 10 AI Stocks to Watch for the Rest of 2024. In this article, we are going to take a look at where Amazon.com Inc (NASDAQ:AMZN) stands against other AI stocks to watch for the rest of 2024.
Talking about the latest market situation during a program on CNBC, Julian Emanuel, Evercore ISI senior managing director, said that despite the ups and downs that have happened since the pandemic, the US remains an economy that is “envy of the world.” The analyst urged investors to pile into stocks that have historically performed well after the Fed started cutting rates and hinted at the expected “turbulence” related to US elections.
“We love what we call the Fed rate cut playbook. You go back to 1970, you look at all the rate cutting cycles, there’s a very pronounced outperformance in the year after the Fed starts cutting from info tech, surprise surprise. Small caps, which might be a bit counterintuitive considering how much they took it on the chin today, but also, barbelled by the more defensive sectors, consumer staples and health care. So, to us, that’s sort of the sensible way that will help you ride out if you get some turbulence, which, obvious, if there’s a contested outcome, you’re likely going to get some turbulence.”
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Pointing to market volatility, Emanuel said that the “wall of worry” is still strong.
“The wall of worry is still very, very intact. And if you think about it, yeah, the VIX is low compared to maybe longer run history, but actually, if you think about the inertia of the markets the last several weeks, the VIX is high, and it should be, in front of probably one of the biggest unknowns we’ve been facing, certainly in the last four years, if not longer.”
For this article we picked 10 AI stocks trending based on latest news. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Oppenheimer warns that the growing demand for data centers is expected to surpass infrastructure capacity, potentially leading to shortages in 2025. The surge in large language models and AI applications, which need vast computing power, is driving this demand.
“The hyperscalers are still locked in an LLM war where there is a shortage of infrastructure for training, which is helping with datacenter pricing,” said Oppenheimer analyst Timothy Horan in a recent note.
“Checks indicate extremely strong hyperscaler datacenter demand, and we will likely run out of capacity next year,” he added. “Positively, enterprises realize data is the new oil and will require migration to the cloud to enable AI. Everyone is trying to balance latency, cost, and accuracy, which often need smaller models.”
The firm named Amazon.com (NASDAQ:AMZN) among the obvious winners of the data center race, along with several other primary and secondary players.
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
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.”
Overall, AMZN ranks 1st on our list of AI stocks to watch for the rest of 2024. While we acknowledge the potential of 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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Disclosure: None. This article is originally published at Insider Monkey.
