In this article we present the list of Billionaire David Tepper’s 10 Long-Term Stock Picks.
David Tepper’s Appaloosa Management is a multi-billion dollar hedge fund that was co-founded by billionaire Carolina Panthers owner Tepper in 1993. The fund was initially launched with a focus on distressed debt, which Tepper had years of experience in following a seven-year run as a credit analyst and head trader at Goldman Sachs.
Appaloosa quickly built a name for itself on the backs of those distressed equities and Tepper’s aggressive investment style, returning 57% within its first six months of operation and has delivered impressive compound returns of greater than 25% since inception. It was managing $800 million in assets within five years of launching, which has since grown to $16.8 billion as of late 2023.
That figure would be much greater if not for the fact that Tepper began transitioning his fund into a family office in 2019, beginning the process of returning money to outside investors. By 2022, nearly 90% of Appaloosa’s assets were owned by either Tepper, his family, or Appaloosa employees.
Appaloosa’s 13F portfolio contained just 38 long positions heading into the final quarter of 2024, and was valued at $6.73 billion, up from $6.18 billion at the end of June. The fund added four new positions to its portfolio during Q3, while unloading three former holdings.
Tech stocks held a dominant position in the fund’s portfolio for the third straight quarter, accounting for 38.5% of its value. The fund also had significant exposure to both communications and consumer discretionary stocks, at 24.6% and 23.1% respectively.
Appaloosa’s exposure to various sectors was markedly different just five quarters earlier, when tech stocks accounted for just 7.1% of its 13F portfolio, while energy and utilities stocks came in at 15% and 21.7% respectively. The fund also had much greater exposure to healthcare stocks at that time, which accounted for 9.2% of its portfolio value, compared to just 2.4% at the end of September 2024.
Of particular note is not just the sector allocations of Tepper’s fund, but also where those stocks originate from. Appaloosa’s top two stock picks are both Chinese stocks, as are 4 of its top 12 equity holdings. The fund has also built a stake in a major Chinese large-cap ETF. The bulk of those China-based additions to Appaloosa’s portfolio have come within the past five quarters, just ahead of major stimulus initiatives and economic policy shifts by the Chinese government that have helped spur in a rebound in the world’s second-largest economy.
In a September interview on CNBC’s Squawk Box, Tepper noted that despite some recent gains in Chinese stocks, they are still trading significantly below past valuations and at just single-digit earnings multiples despite double-digit growth rates. He contrasted that to the S&P trading at a 20+x multiple to highlight the ongoing attractiveness of Chinese stocks. Tepper added that the Chinese government has exceeded expectations when it comes to its stimulus plans, which should bode very well for the Chinese economy in the months and years to come.
Given Appaloosa’s highly concentrated portfolio and the relatively short timeframes with which it overhauls its holdings, there is notable value in focusing on those stocks that the fund has held on to for several years. In this article, we’ll look at billionaire David Tepper’s 10 long-term stock picks, all of which have been held by Appaloosa for at least three years.
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC.
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). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
Billionaire David Tepper’s 10 Long-Term Stock Picks
10. MPLX LP (NYSE:MPLX)
Value of Appaloosa Management’s 13F Position (9/30/2024): $25.7 million
Number of Hedge Fund Shareholders (9/30/2024): 9
David Tepper has held shares of midstream energy services company MPLX LP (NYSE:MPLX) since Q4 of 2020 and was one of just nine shareholders of the stock as of September 30 among the exclusive group of hedge funds tracked by Insider Monkey. Appaloosa Management lowered its stake in MPLX by 6% during Q3 to 578,500 shares.
Despite the limited smart money ownership, you don’t need to squint very hard to see what David Tepper likes about MPLX LP (NYSE:MPLX), beginning with the company’s robust dividend, which yields 7.3%. The strong dividend payment growth has been supported via a 7.7% compound annual raise in the company’s distributable income since 2020. MPLX also has an exciting roadmap for future growth, with several pipeline projects expected to come online over the next two years, including the Blackcomb and Rio Bravo pipelines.
While some analysts are cautious on midstream stocks in 2025, citing robust valuations, several analysts nonetheless have buy-equivalent ratings on MPLX LP (NYSE:MPLX), including Wells Fargo, RBC Capital, and Truist, all of which have price targets on MPLX ranging between $52 and $55. Truist is particularly bullish on the company’s exposure to both the Permian and Marcellus basins, which have some of the best growth rates in the industry.
9. Antero Resources Corporation (NYSE:AR)
Value of Appaloosa Management’s 13F Position (9/30/2024): $50 million
Number of Hedge Fund Shareholders (9/30/2024): 39
Energy companies make up nearly half of David Tepper’s top long-term stock picks, including natural gas exploration and production company Antero Resources Corporation (NYSE:AR), which the billionaire’s hedge fund has been a shareholder of since Q1 of 2021. While Antero is more popular than MPLX among hedge funds, ownership of the stock has fallen by 43% since mid-2022.
Antero Resources Corporation (NYSE:AR) grew its free cash flow after dividends to $40 million in Q3, a 32% year-over-year increase and has generated $350 million in free cash flow over the past two years. The company is using those funds to lower its leverage, which stands at 3.1x as of September 30 and is anticipated to fall below 3x by the end of 2024. CFO Brendan Kreuger has indicated the company will consider entering the buyback market next year should it achieve its target leverage.
Antero Resources Corporation (NYSE:AR) is also in line for a $248 million payout from Veolia Water Technologies after it launched a lawsuit against the company for breach of contract and fraud. That lawsuit was successfully concluded in early 2023, though the timing of the payment is still in the court’s hands and uncertain according to Kreuger. Antero will assess its debt position at the time of payment to determine how the funds should be allocated.
8. EQT Corporation (NYSE:EQT)
Value of Appaloosa Management’s 13F Position (9/30/2024): $65.8 million
Number of Hedge Fund Shareholders (9/30/2024): 47
Appaloosa trimmed its stake in EQT Corporation (NYSE:EQT) by 6% during the third quarter, as it did with both of the energy stocks above, ending September with just under 1.8 million shares. The fund added EQT to its portfolio in the final quarter of 2020. Numerous other funds made big additions to their EQT holdings during Q3, including Steve Cohen’s Point72 Asset Management and Ken Griffin’s Citadel Investment Group.
Analysts were impressed with EQT Corporation (NYSE:EQT)’s strong earnings beat in Q3, when the natural gas producer earned $0.12 per share on an adjusted basis, double what estimates were projecting. The company also grew revenue by 7.6% year-over-year to $1.28 billion despite a challenging commodity price environment. EQT’s rapid integration of Equitrans Midstream, which it acquired in July 2024, also drew plaudits, with EQT reporting that it had achieved over 60% integration by the end of Q3. UBS and Piper Sandler both raised their price targets on EQT by $2 following the company’s Q3 earnings report, to $42 and $34 respectively.
Legacy Ridge Capital Management discussed why it would take a stake in EQT Corporation (NYSE:EQT) following its merger with Equitrans in the fund’s Q2 2024 investor letter:
“In addition to Vistra’s performance compelling us to reorder the top of the portfolio, two other positions had news warranting brief updates: Summit Midstream Partners (SMLP) continues restructuring the business and balance sheet, and Equitrans Midstream (ETRN) is getting acquired by EQT Corporation (NYSE:EQT).
Lastly, we wrote about Equitrans Midstream (ETRN) in the 2023 mid-year letter, primarily discussing that company’s long and expensive journey completing the Mountain Valley Pipeline and the short-term opportunity we took advantage of. After all the hand wringing and stress with respect to that one project the whole business will end up right where it started, as part of EQT Corp. (EQT). In March, EQT announced they are acquiring each ETRN share for .3504 EQT shares. The transaction should close within the next several weeks.
EQT is the top natural gas producer in the United States with a dominant position in the Appalachian Basin and will become one of the lowest cost gas producers in the US, if not the lowest, after consummating this merger. Our fund is going to exchange the ETRN shares and become EQT owners. The investment checks important boxes for us: 1) a disciplined management team focused on tangible value creation; 2) an ability to generate significant FCF that gets returned to shareholders; 3) exposure to a commodity with strong secular demand trends, which gives us a call-option on higher prices. At only 5% of our assets it will start as a small position for us, but with natural gas prices volatile and back in the low-$2’s we should have ample opportunity to exploit the volatility over time and hopefully make it bigger.”
7. UnitedHealth Group Incorporated (NYSE:UNH)
Value of Appaloosa Management’s 13F Position (9/30/2024): $102 million
Number of Hedge Fund Shareholders (9/30/2024): 115
Appaloosa has been a shareholder of the world’s largest healthcare company, UnitedHealth Group Incorporated (NYSE:UNH) since Q1 of 2017. The fund ended Q3 of this year with 174,500 UNH shares, down 6% from a quarter earlier. More than 100 funds have been long UNH during each of the past nine quarters, though one of its newest shareholders now has the largest position, as Rajiv Jain’s GQG Partners added a 3.72 million share stake in UNH to its 13F portfolio during Q3.
UnitedHealth Group Incorporated (NYSE:UNH) shares have been under pressure in recent weeks following the killing of CEO Brian Thompson on December 4. The public response to the murder has been borderline schadenfreude and sparked an ongoing debate about the outsized power and perceived heartlessness of insurers like UnitedHealth Group.
That debate reached the floor of the Senate a week later, with reports emerging that a bipartisan bill was in the works that would force health insurers to sell off their pharmacy benefit managers, who work as middlemen that manage insurers’ prescription drug programs. An interim report released by the FTC in July found that PBMs may be responsible for driving up costs and limiting the choice of prescriptions made available to Americans, which could warrant regulatory measures the report concluded.
UnitedHealth Group owns one of the largest pharmacy benefit managers in the country, OptumRX, which managed $222 billion in pharmaceutical spending in 2023 and grew revenue by 16.4% year-over-year to $116 billion, which accounted for 31% of UnitedHealth’s 2023 revenue.
Parnassus Value Equity Fund shared some of the secular tailwinds it sees bolstering UnitedHealth Group Incorporated (NYSE:UNH)’s outlook in the fund’s Q3 2024 investor letter:
“We purchased two new stocks, UnitedHealth Group Incorporated (NYSE:UNH) and Amazon. These are high-quality businesses facing temporary issues, which allowed us to purchase them at discounted valuations. The addition of UnitedHealth increases our small overweight to the Health Care sector. UnitedHealth benefits from secular tailwinds of an aging population, health care cost inflation and increasingly relevant use of heath care data/analytics. It also commands industry leadership when it comes to its extensive assets, vertical integration and deep management bench. Even though the stock has underperformed in the past year, we believe many of those factors have been priced in, positioning it well for growth in the near term.”
6. Uber Technologies, Inc. (NYSE:UBER)
Value of Appaloosa Management’s 13F Position (9/30/2024): $106 million
Number of Hedge Fund Shareholders (9/30/2024): 137
Ride-hailing and delivery platform Uber Technologies, Inc. (NYSE:UBER) closes out the first half of David Tepper’s top ten long-term stock picks, with the billionaire money manager owning a stake in the company since Q2 of 2021. Overall hedge fund ownership of UBER has remained remarkably consistent throughout that three-plus year period, coming in at 139 13 quarters ago and 137 in the latest quarter.
Uber Technologies, Inc. (NYSE:UBER) shares have stalled this year as investors appear to be taking a breather from the stock to allow it to grow into its lofty valuation, which still stands at 28.9x earnings. And while Uber has diversified its income streams in recent years, most notably with delivery services, there is still long-term concern about the company’s place in a perhaps-not-too-distant future where autonomous vehicles are criss-crossing the globe in perfect driverless harmony.
In the meantime, Uber is expected to grow at an impressive near-term rate, with a projected CAGR on the revenue front of 17% between 2024 and 2026, while EBITDA growth will be even more robust at 30%.
And not every market analyst is convinced of Uber’s impending doom under the tires of a fleet of merciless robotaxis. Oppenheimer considers UBER a top stock pick for 2025 and points out several major hurdles facing robotaxis, most notably the excessive costs of up to $40 billion to build and maintain a fleet of them. The firm even opines that robotaxis could actually increase Uber’s addressable market ever so slightly, by pushing the company to drive deeper into consumer car expenses. Oppenheimer has an $85 price target and ‘Outperform’ rating on UBER shares.
The RiverPark Large Growth Fund broke down Uber Technologies, Inc. (NYSE:UBER)’s impressive market reach in the fund’s Q4 2023 investor letter:
“Uber Technologies, Inc. (NYSE:UBER): UBER was a top contributor in the quarter following better than expected 3Q23 earnings and 4Q23 guidance. Gross bookings of $35.3 billion were up 21% year over year. Mobility gross bookings of $17.9 billion grew 30% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $16 billion were up 16% from last year and continued to be strong throughout the quarter. 1Q Adjusted EBITDA of $1.1 billion, up $576 million year over year, was better than management’s guidance of $1 billion, and the company generated $900 million of free cash flow, up from $358 million last year. Management guided to continuing growth in 4Q Gross Bookings (23.5% growth) and Adjusted EBITDA (of $1.2 billion).
UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates.1 Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.2 billion of unrestricted cash and $5.1 billion of investments, the company today has an enterprise value of $128 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
5. Energy Transfer LP (NYSE:ET)
Value of Appaloosa Management’s 13F Position (9/30/2024): $110 million
Number of Hedge Fund Shareholders (9/30/2024): 29
Energy Transfer LP (NYSE:ET) is Appaloosa’s top long-term energy stock to make the list, having a place in the fund’s 13F portfolio since the second quarter of 2017. Appaloosa cut its stake in the company by 12% during the latest quarter, to 6.83 million shares. Energy Transfer has lost hedge fund support in five of the past seven quarters, with an overall dip in smart money ownership of 26% during that time.
Energy Transfer LP (NYSE:ET) shares are near 52-week highs, which hasn’t frightened David Tepper away from the midstream giant. Part of that ongoing conviction could be due to the stock’s attractive dividend yield of 6.7%, with the company having paid out dividends for 18 straight years.
ET shares are slightly more expensive than peers at 14.3x earnings, but analysts expect the company’s earnings growth to be solid, with projections for between $1.39 and $1.56 in earnings next year and between $1.52 and $1.69 in earnings in 2026. Energy Transfer is a top 25 U.S. stock pick for 2025 by UBS, one of just three energy stocks to make the list.
Samantha McLemore’s Patient Capital Management continues to like the long-term outlook for Energy Transfer LP (NYSE:ET), as the fund revealed in its Q3 2024 investor letter:
“Energy names disappointed in the quarter following commodity prices lower throughout the period. We took the opportunity to add to our highest conviction ideas. We look to names that have idiosyncratic opportunities and are attractive in a variety of different commodity price environments. Many see risk to energy prices over the next year as supply is expected to outstrip demand by 1.3mb/d even before assuming any incremental OPEC supply comes onto the market. With commodities, consensus is rarely right. We assess companies on through cycle returns and normalized prices. From this perspective, we see a handful of attractive opportunities, including Energy Transfer LP (NYSE:ET), Seadrill (SDRL) and Kosmos (KOS).
Our ownership of Energy Transfer began in 2019 with the belief that the limited supply of new pipelines would provide attractive pricing opportunities over the long-term. At the same time, the company was paying us an attractive dividend (10% yield over the period). So far this investment thesis has largely played out, but we continue to see an attractive long-term setup for the name given our belief that natural gas will be a key ingredient to bridge us to a net carbon neutral world.”
4. Alphabet Inc. (NASDAQ:GOOGL)
Value of Appaloosa Management’s 13F Position (9/30/2024): $315 million (GOOG)
Number of Hedge Fund Shareholders (9/30/2024): 202 (GOOGL), 160 (GOOG)
Alphabet Inc. (NASDAQ:GOOGL) is the oldest holding in Appaloosa’s 13F portfolio to make the top ten list, spending a little over a decade as one of the fund’s stock picks. Alphabet has consistently ranked as one of hedge funds’ top stocks throughout that time, with no less than 310 funds being long GOOG or GOOGL shares since 2017.
Alphabet Inc. (NASDAQ:GOOGL) shares have gained 117% since the end of 2022 despite the tech giant facing numerous regulatory challenges around the world. In fact, some analysts view the latest regulatory developments as a potential near-term catalyst for the stock, with Barclays suggesting that GOOGL shares could rally “significantly” if Alphabet’s remedies are chosen over the government’s in the company’s ongoing antitrust case in the U.S.
Alphabet is also restoring investor confidence in its AI capabilities following the much publicized criticism of its “woke” AI chatbot back in February, which made major racial errors in its image generation function. Alphabet’s AI video generator Veo 2 is reportedly outperforming its biggest rival, Sora, in generating high-quality and accurate video content, which is leading to greater adoption among YouTube advertisers. Google’s AI search function Overviews is also being credited with providing a slight boost to Google’s search market share, both of which should boost revenue in 2025 and beyond.
Qualivian Investment Partners discussed why it views Alphabet Inc. (NASDAQ:GOOGL) as a core long-term holding in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
3. Meta Platforms, Inc. (NASDAQ:META)
Value of Appaloosa Management’s 13F Position (9/30/2024): $358 million
Number of Hedge Fund Shareholders (9/30/2024): 239
Appaloosa cut its Meta Platforms, Inc. (NASDAQ:META) stake by 34% in Q3 to 625,000 shares, taking profits following a big year for the social media giant’s stock, which has gained 72% in 2024. META shares have gained 417% since the end of Q1 2016, when Appaloosa first built a stake in the company. Smart money ownership of META has risen during seven of the past eight quarters after hitting a five-year low in Q3 2022.
As with Alphabet, Meta Platforms, Inc. (NASDAQ:META) is also rapidly developing and expanding its AI capabilities, which has investors excited about the potential for growth and efficiency boosts in the company’s operations. Meta’s revenue grew by 19% year-over-year in Q3 to $40.6 billion, thanks in part to AI recommendations boosting the amount of time users spend on Meta’s Facebook and Instagram platforms by 8% and 6% respectively.
Meta’s earnings growth was even more impressive in Q3, jumping by 37% to $6.03 per share, and analysts anticipate strong double-digit earnings growth (18%) for the next five years as AI continues to improve ad conversion on the platform and the company further develops and monetizes some of its less heralded assets like WhatsApp and the Metaverse.
Hardman Johnston Global Equity feels more comfortable owning Meta Platforms, Inc. (NASDAQ:META) now given the company’s more proactive approach to data and privacy protection, as the fund shared in its Q3 2024 investor letter:
“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”
2. Microsoft Corporation (NASDAQ:MSFT)
Value of Appaloosa Management’s 13F Position (9/30/2024): $417 million
Number of Hedge Fund Shareholders (9/30/2024): 284
Ranking second on the list of Appaloosa’s top long-term holdings is Microsoft Corporation (NASDAQ:MSFT), which has had a place in the fund’s 13F portfolio since Q1 2020. The fund cut its stake in the tech giant by 18% during Q3 to 970,000 shares, with the stock ranking as its fourth-largest position overall. Hedge fund ownership of Microsoft was flat during Q3 and has dipped by 9% over the past year.
Some investors are worried that Microsoft Corporation (NASDAQ:MSFT)’s lead in cloud services and generative AI is wilting, which has forced it to boost its genAI-related capital expenditures. While that could drag down free cash flow in the near term, the investments are expected to begin paying dividends in the second half of the company’s fiscal 2025, when new capabilities are rolled out for Azure.
Barclays predicts Microsoft’s Azure growth will accelerate in the second-half of FY25 to between 31% and 32%, while UBS is even more bullish, projecting 34% year-over-year growth. Loop Capital predicts that Microsoft’s free cash flow will still grow at a strong CAGR of 18% through FY27 despite the capex constraints, before accelerating to as high as 40% growth in FY30. The firm has a $550 price target on Microsoft.
RiverPark Large Growth Fund expects continued double-digit revenue and EPS growth for Microsoft Corporation (NASDAQ:MSFT) according to its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
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.
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