We recently compiled a list of the Blackrock’s 30 Most Important AI Stocks. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other AI stocks.
In the third quarter of 2024, investment titan Blackrock released a commentary on the market outlook for artificial intelligence heading into the closing months of the year, stressing that investors were becoming cautious about the scale of AI spending by tech firms and thus diversifying investments into energy, utilities, real estate, and resources tied to AI infrastructure (for more on this click on 30 Most Important AI Stocks According to BlackRock). Following this warning, in September 2024, BlackRock, in collaboration with Microsoft, Global Infrastructure Partners, and MGX, announced a new AI partnership aimed at investing in data centers and supporting power infrastructure. This initiative was part of a larger strategy by the investment firm to enhance American competitiveness in AI while meeting the growing need for energy infrastructure to power economic growth.
The investment giant also expanded product offerings to cater to the growing interest in AI. In October 2024, the firm launched two new exchange-traded funds (ETFs) designed to provide investors with exposure to the burgeoning AI market. These ETFs aimed to capitalize on the increasing demand for AI-driven investment opportunities. Though still in their early stages, the initiatives appear to have paid off. BlackRock reported a net profit of $6.37 billion last year, marking a 16% increase from the previous year. Revenues rose by 14% to $20.4 billion, and assets under management expanded to $11.55 trillion. The firm has attributed a major part of this growth to advancements in AI technologies and projected that AI will be a significant driver of US equities and economic expansion in 2025.
The BlackRock Investment Institute notes that AI innovations are expected to outpace similar developments in Europe, with private markets playing a crucial role in funding AI-related infrastructure. BlackRock’s 2025 Global Outlook suggests that the global economy has moved beyond the traditional boom and bust cycle due to transformative mega forces such as AI technologies, net-zero carbon emission efforts, geopolitical fragmentation, demographic shifts, and the digitization of finance. The firm believes that significant investments, akin to those of the Industrial Revolution, are needed, particularly in infrastructure tied to AI and green technology. The claims made by BlackRock in relation to AI are shared by investment firm JPMorgan.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
According to a recent report on the topic by investment bank JPMorgan, investors should focus on opportunities that will prevail right along the AI value chain instead of focusing on obvious choices. Analysts at the bank have advised investors to weigh future potential earnings against what is already embedded in the price. Per JPMorgan, cheaper valuations and less demanding earnings expectations outside of mega cap tech stocks suggest that even AI bulls should be positioned for further broadening across sectors in 2025. The Investment Outlook 2025 report by JPMorgan takes a look at the soaring valuations of the Magnificent Seven group of stocks and their importance to the AI revolution. The bank highlights that while each of the companies in the Magnificent Seven are geared differently to the AI theme, this group of stocks now make up nearly 35% of the S&P 500 market cap and have driven over 70% of returns since the beginning of 2023.
This performance, compared against the rest of the market, has allowed for the expansion of valuations. JPMorgan underlines that while the rest of the S&P 500 trades on 12-month forward earnings multiple of 19x, the largest 10 stocks in the index now trade on 29x. Analysts led by Karen Ward, the Chief Market Strategist for EMEA at JPMorgan, contend that the valuation discrepancy between tech and the rest is unsustainable. The report stresses that if the broad AI ecosystem generates sufficient revenues to justify the earnings expectations already assumed for a handful of companies, the rest should catch up over time. It also cautions that if instead, the broader corporate universe does not see the clear use case of these technologies and is unwilling to pay for them, then a catch down scenario is more likely. However, when the strong fundamentals of these mega caps are compared to other parts of the S&P 500 today, as well as to the 2000s tech bubble, a catch down seems unlikely, it notes.
JPMorgan broke down the AI revolution into five key areas. These were identified as AI hardware, AI hyperscalers, AI developers, AI integrators, and AI essentials. JPMorgan has warned that there is a substantial gap between the revenue expectations of hardware companies and the revenue growth that can be generated by the AI ecosystem. The bank has cautioned that this weakness can spread throughout the AI value chain. The report notes that the attention of investors has so far focused on AI hardware and AI hyperscalers, two areas of the AI industry more exposed to the technology and communication services sectors. Per JPMorgan, high levels of valuation dispersion in these categories suggest that opportunities for skilled stock pickers persist, but investors must recognize that any earnings disappointment could lead to substantial volatility.
Read more about these developments by accessing 12 Best Quantum Computing Stocks To Invest In and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
For this article, we selected AI stocks by consulting an investor note from prominent investment firm BlackRock. These stocks are also popular among hedge funds. 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).
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Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com, Inc. (NASDAQ:AMZN) engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. There are several key elements that position this company as an appealing choice for investors. Firstly, per the earnings report for the third quarter, operating cash flow increased 57% to $112.7 billion, compared with $71.7 billion for the previous year. The company has also launched new foundation models in Amazon Bedrock and Amazon SageMaker, including AI21 Labs’ Jamba 1.5 family, Anthropic’s upgraded Claude 3.5 Sonnet, Meta’s Llama 3.2, Mistral Large 2, and multiple Stability AI models. Furthermore, Amazon also launched new memory-optimized, compute-optimized, and general-purpose Amazon EC2 instances based on AWS’s latest generation Graviton4 processor, which delivers 75% more memory bandwidth and 30% better compute performance than the previous generation Graviton chips.
Overall AMZN ranks 1st on our list of Blackrock’s most important AI stocks. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some 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.
