We recently published a list of 7 Best AI Value Stocks That are ‘Money Machines’ According to NYU’s Aswath Damodaran. Since Amazon.com Inc (NASDAQ:AMZN) ranks 1st on the list, it deserves a deeper look.
Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University. His thoughts on economy and stock valuations are given a lot of weight by analysts. Damodaran in his recent interview with CNBC said that Magnificent Seven stocks have become the “value stocks for investors who care about earnings and cash flows.”
“We look at the last year and a half, they’ve added $8.8 trillion in market cap… just these seven companies. Just to give you perspective, the second-largest market in the world, China, has a market cap of $12.1 trillion. These seven stocks alone have added more in market cap than the entire German market, the French market, the Swiss market.”
Damodaran’s comments are important because he’s been repeatedly saying in the past that major technology companies are fully or overvalued. In September, he said on CNBC that if you go through the list of top tech stocks, “you are more likely to be overvalued than undervalued.”
But in his latest interview, Damodaran said that before we “dismiss” Mag. 7 stocks as “risky tech companies,” we should keep in mind that “these are the money machines in this market.”
However, when asked whether he believes we are not in any kind of “danger zone,” the professor said we are in the danger zone not just in terms of these seven stocks, but the market overall.
In this article we take a look at the Mag 7. stocks and their AI-related growth catalysts. 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).
Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 302
AMZN is one of the top names in the Mag. 7 group of stocks which Aswath Damodoran recently called “money machines.”
Amazon.com Inc (NASDAQ:AMZN) is one of the stocks Dan Ives of Wedbush thinks have the potential to grow based on the AI revolution.
Investment firm UBS in a latest report named Trainium and Inferentia as Amazon.com Inc’s (NASDAQ:AMZN) strengths in the AI Enabling layer to profit from the $1.16 trillion opportunity. Trainium is a machine learning (ML) chip that AWS purpose-built for deep learning (DL) training of 100B+ parameter models. Inferentia is an AI accelerator for deep learning (DL) and generative AI inference applications.
Amazon Web Services is another major factor that makes Amazon.com Inc (NASDAQ:AMZN) well positioned in the Enabling layer of the AI value chain. However, UBS believes Amazon.com Inc (NASDAQ:AMZN) doesn’t have any offering in the Intelligence layer of the AI value chain. The firm labeled “chatbot recommendations” as Amazon.com Inc’s (NASDAQ:AMZN) strength in the application layer of AI.
Amazon.com Inc (NASDAQ:AMZN) is becoming an AI power house thanks to its AWS business, which saw operating margins cross 37% during the first quarter. AWS operating margins have now came in more than 30% for the past five straight quarters. Amazon.com Inc’s (NASDAQ:AMZN) revenue in the first quarter jumped 12.5% YoY and its adjusted EPS more than tripled. Revenue in North America and International segments grew as well. Analysts believe digital ads is another strong revenue stream for Amazon.com Inc (NASDAQ:AMZN), with revenue from the segment increasing 24% YoY to $11.8 billion in the first quarter.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“In his annual letter to shareholders, CEO Andy Jassy underscores Amazon.com, Inc.’s (NASDAQ:AMZN) commitment to “primitive services” over the last 20 years – creating foundational building blocks that empower rapid development of higher level products and services. Examples include developing core functionalities like payments and search, which eventually led to the Fulfilled by Amazon service, or developing logistics infrastructure, which led to the Buy with Prime service. Amazon is adopting the same approach to the next front, GenAI, from custom AI chips and training/deployment services to empower companies to construct their own core GenAI models, to their Bedrock service which allows customers to use pre-existing models to more quickly develop applications, to Amazon developing their own applications for internal use (think Alexa and a new shopping AI called Rufus).
Amazon’s dominance comes not just from its scale but also from a relentless “customer obsession,” exemplified by its focus on building services that empower customers. This positions Amazon to capture significant shares of the growing retail and cloud markets. With a 45% share of online retail, which only makes up 25% of total retail sales, Amazon is well-placed for growth. The company’s expansion into the grocery sector, backed by investments in same-day delivery, shows promise. Currently, Amazon holds a 20% share of the grocery market, a segment that constitutes 34% of US retail sales but is only 12% penetrated. As online retail trends towards 40-50% penetration, Amazon’s growth potential is meaningful. Similarly, in the cloud sector, only 10% of IT spending has shifted to the cloud, with AWS holding a 35% market share.”
Overall, Amazon.com Inc (NASDAQ:AMZN) ranks 1st on Insider Monkey’s list titled Jim Cramer’s Latest Portfolio: Top 10 Stocks in July. While we acknowledge the potential of Amazon.com Inc (NASDAQ: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 Amazon.com Inc (NASDAQ: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.
