We recently published a list of the 10 Best AI Momentum Stocks to Benefit from Volatility Ahead. Since Amazon.com Inc (NASDAQ:AMZN) ranks 1st on the list, it deserves a deeper look.
Wolfe Research has joined the ongoing market correction chorus as more and more experts warn of volatility ahead amid soaring valuations led by AI. Wolfe Research, however, believes investors would stick to mega-cap tech stocks to survive through this volatility.
“Our sense is that volatility will continue to pick up over the summer. However, we expect this to generally benefit the Mag 7, secular growers, and the overall Momentum Trade in the weeks ahead.”
Wolfe analysts expect investors to pile into quality stocks that “they can count on” amid economic “data surprises” ahead. The firm expects “these themes to continue to benefit from an environment in which growth is slowing but the Fed is expected to kick off a deep cutting cycle.”
“Further, our sense is that the biggest companies driving these trends will once again put up very solid results during 2Q earnings season.”
Since Wolfe believes investors are poised to stick with Magnificent Seven stocks in the upcoming volatility and called The Information Technology (SPG1200-45)(XLK) and Communication Services (XLC) “big winners”, we picked Mag. 7 stocks and top 3 AI stocks from the XLK for this article. 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
Analysts at Wolfe Research believe Mag. 7 stocks like AMZN will perform well even during the expected volatility this summer.
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.
Meridian Hedged Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its first quarter 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) reported a strong quarter. Its focus on streamlining its fulfillment network through regionalization efforts has yielded significant cost savings and efficiency gains. These improvements, coupled with strategic investments in automation and robotics, are expected to further enhance margins and profitability in the coming quarters. We believe the set-up for margin expansion over the coming years is compelling. Driven both by efficiency gains and growth in more profitable businesses like advertising, Amazon continues to invest strategically in innovation and expansion initiatives. These include advancements in artificial intelligence and machine learning, hello the development of new fulfillment centers and delivery stations, and the expansion of Prime services and digital content offerings. We believe these strategic investments are laying the groundwork for sustained growth and market leadership in the years to come and continue to hold shares in Amazon as an unhedged position.”
Overall, Amazon.com Inc (NASDAQ:AMZN) ranks 1st on Insider Monkey’s list titled 10 Best AI Momentum Stocks to Benefit from Volatility Ahead. 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.
