In this article, we will take a detailed look at Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation.
Jim Cramer in a program last week tried to make sense of the decline in tech stocks, saying companies with the “best fundamentals” got “hammered once again.”
“I did not expect that to happen.”
Cramer said that sometimes it’s difficult to own the “winners.” The CNBC host said it’s important to understand the bear cases around stocks otherwise you will never know what “you are up against.”
Jim Cramer tried to find out whether the latest decline in top tech stocks was just a “periodic selloff” that presented an “opportunity.”
“When we get this kind of rotation, you never know whether these stocks are selling off because there’s something wrong or because they are up huge.”
Jim Cramer pointed to a caveat when it comes to holding winning stocks. When you have the losers, there are no profits, but when you own winners in your portfolio, you can see losses because people want to take some profits off the table, Cramer said.
The CNBC host said when top stocks go down, people holding those in their portfolios often end up thinking about whether they should also sell these stocks and if something has “changed.”
“From what I can tell you, nothing has changed about the stocks we are going talk about tonight. But it is true that the stocks are a heck of a lot more expensive than they were one year ago.”
In this program, we took a look at some top tech stocks that fell last week and explained the reasons they lost value according to Jim Cramer. We also discussed these companies’ fundamentals and 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).
10. SharkNinja Inc (NYSE:SN)
Number of Hedge Fund Investors: 57
Talking about appliances company SharkNinja, Inc. (NYSE:SN), here is what Jim Cramer said in a latest program:
“SharkNinja is a very very good company that I think is still coming down a little bit more because it has got a high price-to-earnings multiple.”
Cramer said that he wants SharkNinja “back on” to see how the company is doing before recommending the stock.
Artisan Small Cap Fund stated the following regarding SharkNinja, Inc. (NYSE:SN) in its first quarter 2024 investor letter:
“Along with Iovance Biotherapeutics, notable adds in the quarter included SharkNinja, Inc. (NYSE:SN). We already mentioned emerging signs of consumer weakness, especially among those with lower incomes. We think this environment sets up nicely for companies that provide high-quality products sold at a discount to capture market share from their name-brand competitors. SharkNinja and e.l.f. Beauty are two examples. SharkNinja is a leading household consumer products company with the Shark and Ninja brands. The Shark brand focuses on the cleaning category (vacuums, mops, carpet cleaners, etc.) and more recently, beauty (hair dryers, hair stylers, etc.). The Ninja brand focuses on food preparation (blenders, food processors, ice cream makers, juicers, etc.) and cooking (indoor grill, ovens, toasters, cookers, air fryer, etc.). We believe a healthy combination of market share gains within existing categories, new category entries and international expansion will drive growth.”
9. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 74
Jim Cramer in a latest program discussed the reasons why Tesla Inc (NASDAQ:TSLA) shares fell recently. Cramer said that the stock gained on “absolutely nothing” but “chatter” about self-driving cars.
“The numbers aren’t that great. That’s ridiculous.”
Cramer said Tesla Inc (NASDAQ:TSLA) stock sells for a large P/E multiple of over 100.
“More than a hundred times earnings. So who wouldn’t want to take profits on that.”
Tesla shares recently plunged after the company postponed its much-awaited robo taxi event until October. However, Tesla bulls say their core thesis remains unchanged.
Cathie Wood recently set a $2600 price target on Tesla Inc (NASDAQ:TSLA) for 2029, which present a whopping 1300% upside potential from the current levels. Wood thinks the robo taxi project has the potential to deliver $8 to $10 trillion in revenue by 2030.
However, many believe Tesla Inc (NASDAQ:TSLA) won’t be able to live up to the hype around its robo taxi plans. Each robo taxi is expected to have a price target of around $150K to $200K, with some estimates suggesting Tesla Inc (NASDAQ:TSLA) would need about $35 billion to develop a global feet of such cars. Amid inflation and lack of preference for electric cars, American families will probably stay away from spending a fortune on robo taxis, which could cause a blow to Tesla Inc’s (NASDAQ:TSLA) plans in the future.
Alger Focus Equity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q1 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) is an electric vehicle manufacturer with a technological lead in its large and rapidly growing addressable market. In our view, Tesla is a transportation company that is setting the pace for industry innovation. During the quarter, shares detracted from performance after the company reported fiscal fourth quarter results, where revenues and earnings missed analysts’ estimates. Weaker-than-expected automotive revenues were partly driven by a reduced average selling price, which was down 15% year-over-year. Moreover, management decided to forgo providing volume guidance, though they did acknowledge they are in a lower growth phase given the uncertain consumer environment particularly as it relates to high ticket purchases.”
8. Eli Lilly And Co (NYSE:LLY)
Number of Hedge Fund Investors: 109
Cramer tried to find out the reasons behind the latest selloff around Eli Lilly And Co (NYSE:LLY), one of this favorite weight-loss stocks.
Cramer said the bear case for LLY is that Roche is developing its own weight loss drug in a “pill form” and not like an injection like Eli Lilly And Co (NYSE:LLY).
But Cramer said that “we talked about this in January” and the drug from Roche isn’t yet approved.
“I mean, we don’t even know how long it would take for it to be approved by the FDA.”
Cramer said he’s still bullish on Eli Lilly And Co (NYSE:LLY) because “these drugs are hard to mass-produce.”
Cramer thinks Eli Lilly And Co (NYSE:LLY) has a “huge lead” in the competition and the stock is “for sale.”
Goldman Sachs recently said in a report that estimated global sales from next-gen obesity drugs could reach $130 billion in 2030, up from its previous estimate of $100 billion. Goldman Sachs highlighted that Eli Lilly & Co (NYSE:LLY) and Novo Nordisk are expected to retain their “duopoly” in the market with an 80% market share through 2030.
Eli Lilly & Co (NYSE:LLY) shares are trading at a P/E of 123, much higher than its 5-year average of 50 and industry median of 33. However, Eli Lilly & Co (NYSE:LLY) blockbuster weight loss drugs like Mounjaro and Zepbound and their growth potential coupled with raging demand for weight loss drugs back this high valuation, according to several market analysts. Last month, Eli Lilly & Co (NYSE:LLY) shares skyrocketed after its diabetes treatment Mufengda® (Tirzepatide Injection) got approval in China which is amongst the countries with the highest recorded cases of diabetes.
Eli Lilly & Co (NYSE:LLY) is expected to see about 120% earnings growth this year and 40% earnings growth next year. Analysts at BofA see Eli Lilly & Co’s (NYSE:LLY) earnings more than doubling this year. The stock is trading at 43x its 2025 EPS estimate of $19.28 set by Wall Street. Eli Lilly’s revenue growth in 2025 could come in at 23.40%, based on data from Yahoo Finance. This high growth in earnings and revenue is more than enough to justify Eli Lilly & Co’s (NYSE:LLY) current stock price, given the company’s market-leading position in the weight loss market.
Baron Health Care Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its first quarter 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company that discovers, develops, manufactures, and sells medicines in the categories of diabetes, oncology, neuroscience, and immunology, among other areas. Stock performance was strong due to robust fourth quarter sales of Mounjaro/ Zepbound, better-than-anticipated initial guidance for fiscal year 2024, and ongoing enthusiasm surrounding the company’s obesity and diabetes franchises. We continue to think Lilly is well positioned to grow revenue and earnings at attractive rates through the end of the decade and beyond.”
7. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 115
Jim Cramer was recently asked about his thoughts on American Superconductor. Here is what he said:
“When I see stocks like Nvidia and Broadcom go down huge, I cannot reach for American Superconductor, not with these high quality stocks that are just on plain old on sale.”
JPMorgan in a latest report said that Broadcom Inc (NASDAQ:AVGO) can “dominate” the high-end of the custom chips market. JPMorgan expects the high-end of the application-specific integrated circuit, or ASIC, market to reach anywhere between $20 billion and $30 billion, up from its previous estimate of $20 billion to $25 billion.
While Broadcom Inc (NASDAQ:AVGO) is directly exposed to the AI semiconductor market, some believe the stock is priced for perfection, with a P/E multiple of 52 and YTD share price gain of 30%. In the first quarter Broadcom Inc (NASDAQ:AVGO) saw a 34% revenue growth, which surprisedWall Street. However, adjusted earnings clocked in growth that was significantly less than revenues, indicating limited margins. Broadcom Inc’s (NASDAQ:AVGO) EV/EBITDA is 22.5, much higher than its five-year average of 14 and sector median of 14. Broadcom Inc’s (NASDAQ:AVGO) debt levels are also worrying for many. It has $73,429 million in long-term debt and $2,374 million in current debt. Broadcom Inc’s (NASDAQ:AVGO) revenue growth is expected to come in at 13% next year and 15.10% over the next five years on a per-annum basis. This means Broadcom Inc (NASDAQ:AVGO) is a laggard when compared to industry leaders like NVDA. The stock’s one-year average analyst price estimate set by Wall Street is $1533, representing an upside potential of just 9%.
ClearBridge Global Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its first quarter 2024 investor letter:
“Among secular growth names, Broadcom Inc. (NASDAQ:AVGO) was another notable addition. Through organic growth and accretive acquisitions, Broadcom has developed into one of the largest global technology providers serving a number of industries with its semiconductor and software products. The company generates high levels of earnings and free cash flow, which will be driven in the coming years by revenue growth and margin expansion due to the acquisition of VMware and strong adoption of the Broadcom’s AI custom silicon chips. The acquisition of VMware is off to a good start and has shifted the business mix to 60% software and 40% semiconductors, enhancing growth prospects while also providing greater downside protection from higher recurring revenue.”
6. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Jim Cramer in a latest program said people were selling Apple Inc (NASDAQ:AAPL) stock in April when it was trading at around $165 saying the new iPhone won’t resonate. But when Apple revealed its AI features at the WWDC event, the stock came “roaring” back, Cramer said. But then why the stock recently went down? Cramer said that Apple recently “peaked” at $230 and has run too much.
“I think that’s what’s ailing it.”
Cramer also believes the anti-China “rhetoric” from Donald Trump is also a factor affecting Apple Inc (NASDAQ:AAPL) shares because “they have big China business.”
Does Apple Inc (NASDAQ:AAPL) have any AI growth catalysts? Wall Street is turning bullish on the company after Apple revealed Apple Intelligence plans at the WWDC event.
Morgan Stanley expects Apple Inc (NASDAQ:AAPL) to ship nearly 500 million iPhones in the next two years, marking a 6% increase from the FY21-FY22 cycle. Morgan Stanley said this growth can boost the annual iPhone average selling price (ASP) by 5%, leading to nearly $485 billion in revenue and $8.70 in earnings per share by FY26, exceeding consensus estimates by 7-9%.
Wall Street is expecting a new AI-powered refresh cycle for iPhones because it’s been years since millions of users upgraded their iPhones. Wedbush recently said 270 million, of 1.5 billion iPhones, have not upgraded in 4+ years
Apple Inc (NASDAQ:AAPL) is also training Siri based on its own language models. These smaller models run on devices, handling various daily tasks, with Apple revealing its on-device model has 3 billion parameters. For more complex tasks, a larger language model runs on Apple Inc (NASDAQ:AAPL) private servers, though its size is undisclosed and likely smaller than current large language models like OpenAI’s GPT-4, which has around 1.8 trillion parameters.
Wedgewood Partners stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) also contributed to performance after unveiling its AI strategy to its software developers. The Company has been at the forefront of proprietary computer processor development for over a decade. Given the compute-intensive nature of AI applications, Apple is well-situated to develop a suite of compelling, consumer-friendly AI services that are also cost-effective. While revenue growth has been relatively flat post-Covid-19, we expect Apple’s AI value proposition will be compelling enough for consumers to continue growing their engagement in the Apple ecosystem over the next several years.”
5. Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Jim Cramer, while trying to analyze the reasons behind Alphabet Inc Class C (NASDAQ:GOOG) latest fall, said that Alphabet is “cheap” and the ad market is “fantastic” while YouTube is “killing” it. But why did the stock go down?
Cramer said people are noticing that Alphabet Inc Class C (NASDAQ:GOOG) search business might be in trouble amid the rise of ChatGPT and other language models.
“Perhaps people think wait a second, I am using their AI platform as well as Microsoft’s, so are their regular search numbers are going down. It’s a legitimate question, I know I use search much less, I go to ChatGPT. Many other people are doing the same thing. What happens, people want to sell first and get their questions answered later whether their search is being hurt by AI.”
Deepwater’s Gene Munster thinks that Alphabet Inc Class C (NASDAQ:GOOG) is going to win the “AI arms race.” While talking to CNBC, the analyst said that Google search business is “intact, no need to worry.” Munster’s thesis is based on his in-depth testing of several large language models and chatbots including Google’s Gemini. Munster also thinks other chatbots do not offer a strong imperative for users to switch from Google search as of yet.
Wedbush’s Dan Ives in a fresh note named Alphabet Inc (NASDAQ:GOOG) as one of the stocks that can benefit from the AI boom.
According to a latest UBS report, Alphabet Inc (NASDAQ:GOOG) falls in all three layers of the AI value chain – enabling, intelligence and application layer. Alphabet Inc (NASDAQ:GOOG) is an AI enabling player because of its Tensor Processing Units (TPUs) and Google Cloud Platform, while Gemini makes it a key player in the intelligence layer. On the application layer, UBS believes Alphabet Inc (NASDAQ:GOOG) has an edge with its Duet AI assistant and advertising. All these catalysts make Alphabet Inc (NASDAQ:GOOG) a company that could benefit from the $1.2 trillion AI opportunity by 2027, UBS said.
Alphabet Inc. (NASDAQ:GOOG) bulls believe the company is just getting started with AI product launches. Alphabet Inc. (NASDAQ:GOOG) is indeed in a strong position to develop an AI ecosystem around its products. For example, demos have shown that Gemini app will help people perform daily personal tasks like note-taking, appointments, writing, etc. These features could easily be integrated with other Google apps. Alphabet Inc.’s (NASDAQ:GOOG) app urges users to sign up for ‘Google One AI Premium’ plan, which has a $19.99 price tag. Google saw advertising revenue accelerate in Q1 2024, boosted by YouTube in particular growing by almost 21% last quarter. Analysts also believe Alphabet Inc. (NASDAQ:GOOG) is in a strong position to offset any headwinds or lost market share in Google search with YouTube, which saw its ads revenue reach $8.1 billion in the first quarter, a 21% growth. Alphabet Inc.’s (NASDAQ:GOOG) net income in the period came in at $23.66 billion, up 57%, or $1.89 per share.
Polen Focus Growth Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“The top absolute contributors were Alphabet Inc. (NASDAQ:GOOG), Microsoft, and Amazon. Turning briefly to positions we do own, Alphabet represented our top absolute contributor. The stock responded positively to attractive across-the-board results that beat expectations, with excitement around GenAI driving growth in its cloud business. Additionally, the company introduced a dividend and announced an additional $70B share buyback, beginning to show prudent capital allocation discipline in our view.”
4. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 186
Cramer said in a latest program mentioned a new research paper by Hendrik Bessembinder from Arizona State University. Here is what the paper said:
“The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by NVIDIA Corp (NASDAQ:NVDA) shareholders,” the paper said.
Cramer said that he thought this was an “amazing number” until his colleague David Faber reminded him that this is “what-have-you-done-for-me-lately business, so it does not matter.”
“This kind of selloff, that’s the prevailing attitude. That’s why everyone wants out,” Cramer said.
NVIDIA Corp (NASDAQ:NVDA) rapid run and soaring valuation have started to make some circles on Wall Street uneasy. New Street Research recently downgraded the stock to Neutral from Buy and set the stock’s price target at $135.
“We downgrade the stock to Neutral today, as upside will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet.” New Street analyst Pierre Ferragu said.
NYU professor and valuation guru Aswath Damodoran has also been skeptical about NVDA over the past several months, saying repeatedly that the stock looks overvalued. In March, when he was asked about his previous predictions (that proved wrong) about NVDA valuation, the professor said that either he has “no idea what I’m talking about” or it’s the market that just does not understand.
Aswath Damodoran at the time said that while Nvidia was in the “driving seat” of the AI bandwagon, its path to profits won’t be as easy as the market assumes.
Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target to $150 from $110 following the 10-1 stock split.
NVIDIA Corp (NASDAQ:NVDA) is one of the stocks accounting for a huge chunk of the total market returns, thanks to its AI-fueled rally that seems to have no end in sight. NVIDIA Corp (NASDAQ:NVDA) shares have gained about 174% over the past year.
Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“In the second quarter, the dominant narrative in markets continued to be generative AI (GenAI). If it wasn’t immediately evident from NVIDIA Corporation’s (NASDAQ:NVDA) meteoric rise to among the largest companies in the world, one need only look so far as the Semiconductor and Technology Hardware industries as a gauge of sentiment, collectively accounting for greater than 70% of the Russell 1000 Growth (“the Index”) and 85% of the S&P 500 headline return quarter to date.
Our Portfolio has no exposure to NVIDIA or other Semiconductor companies currently benefiting from demand for foundational AI Hardware. The largest relative detractors in the quarter were NVIDIA, Apple, and Salesforce.
For the second quarter in a row, NVIDIA represented the top detractor to relative performance as the stock climbed another 37%, bringing the year-to-date return to +150%. As of this writing, NVIDIA is the third largest company in the world, but for a brief moment, it surpassed Microsoft to become the largest company in the world. Yet again, the company delivered blowout results that surpassed already lofty expectations, reinforcing the narrative that NVIDIA is the only obvious “AI winner” due to the amount of revenue it is currently generating.
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 246
Jim Cramer in a latest program said Meta Platforms Inc (NASDAQ:META) seemed “solid” but it’s a “little unnerving” for people to own a stock that is not much liked by the front runner in the presidential race.
“Even though Trump is rabidly anti-China, he’s willing to support Tik Tok, a Chinese company, as a counter-balance to Mark Zuckerberg.”
Cramer was referring to Trump’s recent statement where he said he’s “for TikTok.”
Jefferies analyst Brent Thill chose Meta Platforms Inc (NASDAQ:META) as one of his top AI picks in the consumer AI space.
The social media giant is using AI to optimize ad targeting and recommendation systems to boost engagement and ads revenue. In the first quarter, Meta Platforms Inc’s (NASDAQ:META) revenue jumped 27% to $36.5 billion. A whopping 97% of this revenue came courtesy of ads. In 2024, Meta Platforms Inc’s (NASDAQ:META) ads revenue is expected to rise by 17%. Reels, which is posting solid numbers and engagement lately, saw a 20% ad load in the first quarter, compared with 16.2% in the same quarter last year. Meta Platforms Inc (NASDAQ:META) recently posted speculator Q1 results but the stock slipped after the company revealed that Meta Platforms Inc’s (NASDAQ:META) CapEx will come in the range of $35 billion to $40 billion, higher than the previous forecast of $30 billion to $37 billion. However, long-term analysts believe since most of this spending will go into AI projects, it’ll bode well for the stock down the road.
Based on its 2025 EPS estimate of $23.11 set by Wall Street, Meta Platforms Inc. (NASDAQ:META) is trading at a forward P/E of 21, which makes the stock attractively valued given Meta’s earnings are expected to grow 14.50% next year and by 30% over the next five years on a per-annum basis.
Alger Focus Equity Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q1 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) operates the world’s largest social network, with over 3 billion monthly active users across its platform. The company generates revenue predominantly from advertising. which accounts for over 95% of its total revenue, evenly split between North America and international markets. During the quarter, shares contributed to performance following the release of strong fiscal fourth quarter operating results, with revenues and earnings surpassing analyst estimates. The better-than- expected revenues were attributed to strong advertiser demand and Al-driven ad improvements. Moreover, the company materially raised its fiscal first quarter sales and earnings guidance above analysts’ estimates, buoyed by continued strong advertiser demand trends and enhancements to Reels. Advantage+. Click-to-message, and Shop Ads. Further, management noted that ongoing investment in Al is enhancing user engagement and advertiser returns through improved targeting and measurement. Separately, Meta authorized a new share repurchase plan representing approximately 5% of its market capitalization and announced the initiation of its first dividend, implying an approximate 0.4% yield.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 293
While talking about Microsoft Corp (NASDAQ:MSFT), Jim Cramer in a latest program referred to comments from CNBC host David Faber, who thinks big data center spending could “turn out to be a big waste of money.”
Cramer wondered whether Microsoft Corp (NASDAQ:MSFT) data spending could also end up without big returns.
“I think Co-pilot and AI platform will be huge but will it be big enough to justify their investment, even if the stock sells for 37 times earnings, there is not enough room for failure.”
Jefferies analyst Brent Thill recently chose Microsoft Corp (NASDAQ:MSFT) as his top enterprise AI pick. While talking to CNBC, the analyst said Microsoft is in “great shape” with its “Copilot strategy” for the back half of 2024.
Dan Ives of Wedbush also believes MSFT is one of the leaders in the AI enterprise segment.
New Street Research started covering the stock with a Buy rating. The firm said that Microsoft Corp (NASDAQ:MSFT) is well positioned to grow profit in the “low teens for years to come” even if the AI revolution fails to pan out. New Street Research has a $570 price target on Microsoft Corp (NASDAQ:MSFT).
Analysts believe Microsoft Corp’s (NASDAQ:MSFT) AI ecosystem around its products would strengthen its Cloud division thanks to Microsoft Corp’s (NASDAQ:MSFT) integration of AI into its Cloud products. Microsoft Corp’s (NASDAQ:MSFT) Intelligent Cloud segment’s profit in the latest quarter totaled $12.51 billion, a whopping 32% growth on a YoY basis.
Microsoft Corp’s (NASDAQ:MSFT) huge investments to revive its Search business are also working. Bing’s market share has jumped to 3.64% as of April 2024, a 0.88 points gain on a YoY basis.
Wall Street expects Microsoft Corp’s (NASDAQ:MSFT) earnings to grow 12.50% next year. The stock’s forward P/E of 31 based on 2025 EPS makes it look attractive at the current levels. Average analyst estimate for Microsoft Corp (NASDAQ:MSFT) is $483, which presents a 14% upside potential from the current levels.
ClearBridge Sustainability Leaders Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“The Strategy trailed the Russell 3000 Index benchmark largely due to our diversified positioning, although we maintain a considerable portfolio allocation to large cap AI-related companies. These positions were indeed among our top contributors in the quarter, such as Microsoft Corporation (NASDAQ:MSFT). The company is finding more ways to deploy AI for sustainability objectives such as its ability to better measure, predict and optimize complex systems, which can help its partner communities reduce wildfire risk.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 302
Jim Cramer said in a latest program that people are selling Amazon.com Inc (NASDAQ:AMZN) because it seels 40 times earnings, which is “unusually high, even for Amazon.”
“It’s not a huge beneficiary from lower interest rates so people are fleeing from Amazon.com Inc (NASDAQ:AMZN) and buying cyclical plays.”
Amazon.com Inc (NASDAQ:AMZN) continues to gain on the back of its AWS business which is set to benefit from the rise in AI spending. Mizuho recently cited a survey conducted by one of its partners which shows that AWS sales cycle is seeing acceleration. Mizuho analyst James Lee reiterated his Outperform rating on the stock and gave a $240 price target. The survey shows that spending on AWS is expected to rise about 22% year over year in 2024, up from the previous estimate of 20%, as generative AI projects are seen at an “inflection point” with external models about six months away from commercial deployment.
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.
ClearBridge Sustainability Leaders Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) operates the world’s leading e-commerce marketplace and the largest public cloud platform and has a burgeoning advertising business. We expect to see sustained margin improvement as Amazon’s retail regionalization efforts are bearing fruit and as its advertising business continues to scale ahead of peers. We believe the profitability ramp is still in the early innings as the company turns its attention to improving costs. One area will be inbound shipping, where faster delivery times through reduced freight, miles and packaging can reduce waste. We also see generative AI tailwinds and infrastructure modernization driving re-acceleration in growth at AWS, further enhancing Amazon’s free cash flow compounding potential. In addition, following our early 2024 ESG engagements with Amazon (after multiyear engagements) we were positively inclined to see continued improvements in labor relations (health and safety metrics, benefits and wages), as well as in environmental stewardship (climate targets, reducing packaging materials, electric delivery trucks) and innovation (commitments to responsible AI and data privacy). One of the newly announced initiatives on the retail side is consolidating deliveries into fewer boxes, which reduces packaging.”
While we acknowledge the potential of Amazon.com Inc (NASDAQ: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.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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