We recently compiled a list of the 10 Best S&P 500 Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against other S&P 500 stocks.
As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.
Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.
S&P 500 Index – The Road Ahead
Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.
According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Sectors To Keep on Radar
Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.
Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.
US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.
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Our Methodology
To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, as of Q2 2024.
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).
Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holdings: 308
Amazon.com, Inc. (NASDAQ:AMZN) is engaged in the retail sale of consumer products, advertising, and subscription services. It also has a cloud services business, AWS.
Wall Street analysts believe that Amazon Web Services (AWS) was a beneficiary of the transition of IT spending to the cloud from on-premises. The advent of generative AI ramped up this shift as organizations accelerated to build AI models in the cloud. The unfolding of AI megatrend should support AWS but, at the same time, Amazon.com, Inc. (NASDAQ:AMZN) needs to invest heavily in the technology.
Amazon.com, Inc. (NASDAQ:AMZN)’s substantial investments in logistics and fulfillment impacted margins for some time, but market experts believe that the company has now been reaping the benefits of earlier expenditures. A critical area of focus for Amazon.com, Inc. (NASDAQ:AMZN) revolves around reducing the “cost to serve.”
Notably, a resilient consumer, sustained growth in advertising revenue, and healthy momentum at Amazon Web Services should continue to aid Amazon.com, Inc. (NASDAQ:AMZN). The company continues to gain market share in global e-commerce and also improve its value proposition to merchants and consumers. The rate-cut cycle and changing dynamics of consumer sentiment should help Amazon.com, Inc. (NASDAQ:AMZN) in the near term.
Scotiabank covered the shares of Amazon.com, Inc. (NASDAQ:AMZN) on 11th October. They gave a “Sector outperform” rating and a $245.00 price target. Meridian Funds, managed by ArrowMark Partners, released its second quarter 2024 investor letter. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN) is a global technology company that operates e-commerce, cloud computing, digital advertising, and other businesses. We own Amazon because we believe it is well-positioned to benefit from several strong secular trends, including the shift to online shopping, the growth of cloud computing, and the increasing importance of digital advertising. The company exceeded expectations in the first quarter, with cloud-computing revenue growth accelerating, driven by easing cost optimization pressures and the ramp of generative AI workloads. The North American retail segment drove record operating margins, highlighting the success of Amazon’s efforts to improve efficiency and lower its cost to serve. International retail also showed promise, as emerging markets steadily progressed towards profitability. Given the strength across these key segments, we continue to hold the position in the company.”
Overall, AMZN ranks 1st on our list of 10 Best S&P 500 Stocks to Buy According to Hedge Funds. 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 timeframe. 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 the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.