We recently published a list of Jim Cramer November Portfolio: Top 10 Stocks. In this article, we are going to take a look at where Amazon (NASDAQ:AMZN) stands against the other stocks in Jim Cramer’s November Portfolio.
Stock markets are roaring amid Donald Trump’s victory. Jim Cramer, who has long believed that Trump’s presidency would bode well for the stock market, earlier this week discussed the market’s reaction when chances of a Kamala Harris win were apparently rising. Looking back at Cramer’s analysis in hindsight gives us a nice overview of what groups of stocks could rise in the coming weeks and months.
Jim Cramer on Monday evening analyzed what caused the market to dip as of the closing session. Cramer believed the chances of Iowa turning blue spooked some market circles on various assumptions:
“Let’s start with the most incredible reactions, the bond market. Interest rates went sharply lower today. Now, see, I’m so used to higher, to interest rates going higher in a Democratic win, that this took me by surprise. It’s completely out of character. But the bond market is steep, and its judgment is not made on a whim. There had to be billions of dollars invested today on rates going lower if Harris wins the election. I find that astonishing.”
Cramer then talked about different groups of stocks that moved based on the sentiment that Harris could win this election. Housing stocks rose because the market is bullish based on potential subsidies if Harris wins. Tech stocks, however, fell, and Cramer explained the reason behind that:
“(hyper scalers and tech stocks) traded horribly today. What does it say? It says the traders are betting that Harris will stand by Biden’s FTC and antitrust appointments who are known to be anti-the hyper scalers,” Cramer added.
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Our Methodology
For this article we watched some latest programs of Jim Cramer and picked 10 stocks he’s talking about. With each company we have mentioned its hedge fund sentiment.
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).
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Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Jim Cramer said in a latest program on CNBC that Amazon.com Inc (NASDAQ:AMZN) reported a strong quarter and talked about the company’s rising spending:
“The revenue forecast for the current quarter fell short of expectations, I’m sure someone will freak out about that. Their operating income guidance was excellent because they’ve been very disciplined about controlling expenses. The stock caught fire in after-hours trading. Amazon is spending like mad. Why? Because they want to dominate retail, whether it be Prime with advertising. Along with that dominance comes the most lucrative cloud business.”
Amazon (NASDAQ:AMZN) threw it out of the park with its latest quarterly results amid strong Cloud growth. Amazon Web Services has generated $27.5 billion in revenue, marking a 19% year-over-year increase. The segment’s operating income is expanding at nearly 2.5 times the rate of its revenue growth, boosting Amazon.com Inc (NASDAQ:AMZN)’s overall operating income. At this pace, AWS is on track to deliver $110 billion in annualized revenue. If it maintains its ~20% growth rate, AWS could reach $125-130 billion in revenue in FY 2025.
For the ongoing quarter, Amazon.com Inc (NASDAQ:AMZN) expects revenue between $181.5 billion and $188.5 billion, implying growth of up to 11%. Amazon.com Inc (NASDAQ:AMZN)’s stock currently trades at a forward P/E of 32.9, higher than the big tech average of 25.5. If Amazon grows its earnings per share (EPS) by an average of 25% annually over the next three years, it could achieve an EPS of around $9.25 by FY 2027 (up from an estimated $4.74 in FY 2024). Applying a 35x P/E ratio in line with Amazon.com Inc’s (NASDAQ:AMZN) historical average suggests a fair stock value of over $300. The primary catalyst for this target would be AWS’s robust operating income growth.
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 stocks in Jim Cramer’s November Portfolio. While we acknowledge the potential of AMZN, our conviction lies in the belief that under the radar 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.
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Disclosure: None. This article is originally published at Insider Monkey.