We recently published a list of 10 AI Stocks to Watch on Latest News and Analyst Ratings. In this article, we are going to take a look at where Amazon.com Inc (NASDAQ:AMZN) stands against other AI stocks to watch on latest news and analyst ratings.
AI discussion boards online are buzzing with a new development where tech experts are pointing to a possible plateauing of performance in artificial intelligence applications.
CNBC’s Deirdre Bosa in a latest program quoted tech investor Ben Horowitz, who said in a recent podcast that he’s not seeing performance improvement despite increasing GPUs.
“We’re increasing GPUs at the same rate, but we’re not getting the intelligence improvements at all out of it.”
OpenAI is reportedly facing similar problems with its upcoming AI model.
“The Information reports that the quality increase in OpenAI’s upcoming advanced model, Orion, is smaller than the jump seen between the last two flagship models, GPT-3 and GPT-4. In other words, generational advancements may have peaked as the models are essentially running out of data to train on,” Bosa said.
While the next jump in AI performance is far away in the future, the possibilities this technology has unlocked based on the existing data and resources are keeping investors and Wall Street analysts busy.
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In this article we take a look at top AI stocks trending on the back of latest news and analyst ratings. With each stock 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).
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Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Brent Thill from Jefferies recently said in a program on CNBC that while he is bullish on Amazon.com Inc (NASDAQ:AMZN) in the long term, the market’s concerns around Amazon’s Cloud margins are warranted. However, he believes Amazon.com Inc (NASDAQ:AMZN) is going through a ‘tactical change’ and will be able to solve these issues in the long term.
“On margin, so, I think all the fears are warranted, and certainly, they’ve been saying this, they can’t sustain a 36%, 37% margin at AWS. We have margins going into the low 30s, the rest of the Street already has that forecasted, so, I think part of this is expected, and then part of it is, like, are we going to open up the closet and is it going to be, you know, something scary or — and long-term, or is this going to be a short-term impact.”
The analyst also said investors should “brace” for further margin declines.
“Income could fall in the interim, given what’s happening. In the front half of the year, two-thirds of Amazon’s profitability is from AWS, and the margins were unsustainable at 37%, 36%, so, margins will fall in the back half of the year in Amazon AWS.
They’re getting ready for A.I., they’re about to launch satellites to help, you know, in rural areas to get access to help those businesses and consumers, you know, there’s an advanced investment, as we go into the holiday season. So, I think given the outperformance and the margin, remember, they have been beating pretty big on that income.
So, I think that most of us all have that in our model. So, we believe tactically it’s important to call that out, that some of the margins in their most profitable business is probably unsustainable in front of the biggest A.I. wave that we’re seeing. So, I think everyone should be braced for that.”
Amazon.com Inc (NASDAQ:AMZN) threw it out of the park with its latest quarterly results amid strong Cloud growth. Amazon Web Services has 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.
Polen Focus Growth Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“The largest absolute detractors were Alphabet, Airbnb, and Amazon.com, Inc. (NASDAQ:AMZN). Amazon’s position as a notable detractor speaks more to the size of the position than the magnitude of the underperformance, as the company delivered a solid set of results during the quarter.
We trimmed our positions in Amazon, Alphabet, and Microsoft during the quarter. As we have previously, we trimmed Amazon slightly to bring the weight back to 15% for risk management purposes. We remain very positive on our investment thesis of strong revenue growth and even stronger earnings and free cash flow growth continuing over the next few years.”
Overall, AMZN ranks 1st on our list of AI stocks to watch on latest news and analyst ratings. 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.
