We recently compiled a list of 10 High Growth NASDAQ Stocks That Are Profitable in 2024. In this article, we will look at where Amazon.com, Inc. (NASDAQ:AMZN) ranks among the high-growth NASDAQ stocks that are profitable.
Will the Bull Market Continue as We Enter the Earnings Season?
Malcolm Ethridge, Capital Area Planning Group managing partner, joined CNBC to talk about where the market could go and his sentiment regarding the AI and overall tech sector. While many analysts believe that it will be the small caps that will lead the growth with interest rates easing and the economy slowing down. We recently covered the 8 Most Undervalued Penny Stocks To Buy According To Analysts, where we talked about how Tom Lee, co-founder of Fundstrat Global Advisors likes the small cap in the current market environment. Here’s a piece from the article:
“To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.
Tom Lee has also reaffirmed his belief that the S&P 500 could close above 5,700 by year-end, supported by strong economic fundamentals and a dovish Federal Reserve beginning to cut interest rates. He noted that significant cash reserves are available for investment, which could drive stock prices higher in the next three to twelve months.”
Ethridge thinks otherwise, he believes that mega-cap stocks will continue to lead market growth, although not at the same pace as in recent years but still at a steady pace. He attributes this to the ongoing influence of artificial intelligence (AI) on various sectors, including real estate and manufacturing, which are becoming increasingly vital due to rising demands on infrastructure.
Moreover, while explaining why the mega caps will lead the growth, Ethridge pointed out that for the big tech stocks, Fed rate cuts were not necessary as they had significant cash on their balance sheets to reinvest into newer AI ventures. We have already seen Magnificent Seven invest heavily in AI despite the high rate of borrowing thereby leading the bull market in difficult times.
The rate cuts have now made it easy for other companies that didn’t have enough cash to borrow and invest in technology. However, he also pointed out that the pace of rate cuts might slow down moving forward, thereby making it hard for small caps to keep up the technology investment race. Ethridge suggests that investors may need to adjust their expectations regarding future Federal Reserve rate cuts.
Moreover, we are also entering earnings season, will the earnings derail the momentum or continue to boost the market? Drew Pettit, Citi Research Director of US Equity Strategy joined CNBC in another interview. He thinks that we are in for a decent quarter, although we are in an expensive market.
While talking about how various sectors will perform, Pettit mentioned that software has the highest bar within tech, meaning its growth expectations are high, yet many software companies are not monetizing effectively. This creates volatility in stock performance. As earnings reports come in, Pettit suggests investors should focus on consumer behavior and credit conditions, particularly in the banking sector, which is expected to perform well this quarter. He also encouraged investors to look beyond the recent quarter earnings into 2025 and 2026, while choosing companies to invest in.
Our Methodology
To curate the list of 10 high-growth NASDAQ stocks that are profitable in 2024 we used the Finviz stock screener, Seeking Alpha, and Yahoo Finance as our sources. Using the stock screener, we got an initial list of major NASDAQ stocks sorted by their market capitalization. Next, we sourced the 5-year net income growth and revenue growth rates for these stocks from Seeking Alpha and the GAAP trailing twelve-month net income from Yahoo Finance. We only selected stocks that had 5-year net income and revenue growth of more than 15%. Lastly, we ranked the stocks by the number of hedge fund holders in Q2 2024 from Insider Monkey’s database. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? 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).
Amazon.com, Inc. (NASDAQ:AMZN)
5-Year Net Income Growth: 29.71%
5-Year Revenue Growth: 19.11%
TTM Net Income: $44.42 Billion
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is an international technology company known for its online retail services. Its retail services include online shopping platforms and physical stores. The company also engages in cloud computing services through its Amazon Web Services (AWS), which is one of the major parts of its business.
The company has taken strategic measures to adopt artificial intelligence across its business offerings. Amazon.com, Inc. (NASDAQ:AMZN) had to face some challenges due to an all-time high inflation rate, however, the recent interest rate cuts and changing consumer sentiment have helped the company a lot. During the second quarter of 2024, it improved its net sales by 10% year-over-year to reach $148 billion and as a result, its earnings per share nearly doubled to $1.26.
The company’s cloud business has also done well due to the recent AI integration and jumped 19% year-over-year. The strategic edge of the company comes from its market share which stands at around 38% of the online retail sales in the United States and with the easing cycle from the Fed the share and sales are only expected to grow further.
Amazon.com, Inc. (NASDAQ:AMZN) is the best high-growth NASDAQ stock that is profitable in 2024, we say this because not only has the company generated $44.4 billion in net income during the past 12 months but has also grown its free cash flow by 572% year-over-year.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
Overall AMZN ranks 1st on our list of the high-growth NASDAQ stocks that are profitable. While we acknowledge the potential of AMZN as an investment, 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 a promising AI stock 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 was originally published on Insider Monkey.
