We recently published a list of 10 Buzzing AI Stocks on Latest Analyst Ratings and News. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against other buzzing AI stocks on latest analyst ratings and news.
CJ Muse, Cantor Fitzgerald analyst, explained in a latest program on CNBC that the AI investment cycle is different from the ones we have seen in the past. Muse believes major technology companies investing billions in AI are generating “meaningful” free cash flows.
“This cycle is unlike any other. I think most investors look back to the advent of the internet and how long the internet infrastructure investment cycle played out. But this one’s very different. The companies making the investments, predominantly the hyperscalers, are generating meaningful free cash flow despite spending hundreds of billions of dollars building out AI. Let’s be clear: this is existential for these companies as they all try to get to AGI. I think this is a multi-year investment cycle.”
The analyst talked about the latest AI model released by OpenAI and said the race is now to reach artificial general intelligence (AGI) and companies would require more and more computing power to improve the reasoning capabilities of AI systems.
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For this article, we picked 10 AI stocks currently making headlines on the back of latest analyst ratings and important news. With each stock, we have mentioned its hedge fund sentiment. 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 Investors: 286
Lisa Schreiber from Gradient Investments explained in a latest program on Schwab Network why Amazon.com Inc (NASDAQ:AMZN) is one of her top picks for 2025:
“It’s the leader in online retail and is very well-diversified with its cloud-based business, where it’s also a leader. Additionally, its ad business is gaining momentum and doing very well. Together with the fact that the path to AI monetization seems clearer for Amazon.com Inc (NASDAQ:AMZN) compared to other big names, we just have to recall their latest commentary around their cloud business, where they plan to introduce their own AI chip, which could potentially rival Nvidia down the road. The introduction of their AI agents is also increasing efficiency in their online retail. I think all of that presents great opportunities for 2025.”
In the last reported quarter, Amazon Web Services 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.
Qualivian Investment Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN): Amazon’s Q2 2024 results missed consensus revenue expectations slightly while beating EPS expectations nicely. Revenue grew 10.0%, including continued reacceleration in AWS (Amazon Web Services) which grew 19%; however, North American and International ecommerce revenue growth both showed slight deceleration in their growth rates from prior quarters. Advertising revenues grew 20%, which decelerated a bit from prior quarters as well.
Encouragingly, the company continued its streak of delivering impressive cost efficiencies in Q2 with operating margins jumping 420 bps vs. Q2 2023. Q3 2024 guidance was also a bit lower than consensus expectations sparking some short-term concerns about the strength of the consumer. We remain comfortable with our long-term outlook for Amazon’s ecommerce and AWS businesses, and expect they have new avenues of growth to exploit in scaling their advertising and generative AI business in the years ahead. However, we recognize that there is trepidation about the level of capex spending required to scale their generative AI business.”
Overall, AMZN ranks 1st on our list of buzzing AI stocks on latest analyst ratings and news. 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.
