1. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Appaloosa Management’s 13F Position (9/30/2024): $596 million
Number of Hedge Fund Shareholders (9/30/2024): 290
Topping the list of David Tepper’s top long-term holdings is Amazon.com, Inc. (NASDAQ:AMZN), which the fund has held since Q1 of 2019, and which ranked as its third-largest position on September 30, 2024. Hedge fund ownership of Amazon rose for five straight quarters beginning in Q2 of 2023, before dipping by 7.6% in the latest quarter.
Amazon.com, Inc. (NASDAQ:AMZN) is growing earnings at an even faster rate than it has in several years, with that mark hitting $15.3 billion in Q3, a greater than 50% year-over-year increase. Meanwhile, free cash flow jumped by nearly 200% to $44.9 billion. So while Amazon still trades at a lofty 36x forward earnings, that doesn’t appear at all unreasonable given its recent growth.
There are conflicting opinions on Amazon’s growth prospects from here on out, however, particularly related to AWS. While CEO Andy Jassy believes the bulk of on-premises global IT spending will shift to the cloud over the next decade or two (a trend that comprises the bulk of AWS’s current growth), Alphabet CEO Sundar Pichai struck a more somber tone on AI recently, suggesting that the low-hanging fruit had been picked and that growth in the segment would be slower and far more competitive.
AI aside, Amazon also has strong ongoing growth prospects in retail, the bulk of which (80-85%) is still conducted in-store. Jassy also predicts those figures to flip in the coming ten to 20 years. However, some analysts believe 2025 could be a down year for retail if rate cuts are lower than anticipated and tariffs are imposed on China and/or other countries like Canada and Mexico, raising the cost of goods.
Meridian Hedged Equity Fund believes Amazon.com, Inc. (NASDAQ:AMZN) will continue to grow revenue and improve its profitability, as the fund discussed in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a leading e-commerce company that operates a vast online marketplace for third-party sellers, sells its own products, and provides cloud infrastructure services through Amazon Web Services (AWS). We own Amazon because we believe AWS and advertising will continue to drive long-term revenue growth and profitability improvements. Although the stock didn’t perform well this quarter, we attribute this to a mix of short-term factors, including macroeconomic headwinds impacting consumer and enterprise spending, slowing retail revenue growth, and retail margin expansion falling short of market expectations. Additionally, increased investment in longer-term initiatives like satellite broadband and other experimental projects put further pressure on margins. Despite weaker-than-expected third-quarter guidance, we believe Amazon’s long-term growth story remains strong. We see multiple levers for improved profitability and free cash flow generation over time. We maintained our position in the company during the period.”
Overall, AMZN ranks first among Billionaire David Tepper’s 10 Long-Term Stock Picks. While we acknowledge the potential of AMZN, our conviction lies in the belief that 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.
READ NEXT:10 Best Telecom Dividend Stocks To Buy for 2024 and 10 Cheap NYSE Stocks To Invest In Now.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
