1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jim Cramer in a latest program talked about the likely departure of FTC Commissioner Lina Khan and its impact on Amazon.com Inc (NASDAQ:AMZN) shares.
“Khan, who, as I mentioned, was relentless in her attempts to smash Amazon—boy, did she hate Amazon—believes it’s too powerful. As she put it, “Amazon’s actions allow to stop Rivals and sellers from lowering prices, degrade quality for Shoppers, overcharge sellers, stifle Innovation, and prevent Rivals from Fairly competing against Amazon.com Inc (NASDAQ:AMZN).” But what’s missing? How about the fact that Amazon Prime is the greatest bargain in the world and has managed to lower prices for 200 million users? If you’re a merchant and don’t like their platform, just go to Shopify, for heaven’s sake. It’s not like Amazon is sending the mafia to put its rivals out of business—it’s just great at what it does. How could the FTC be so out of step with America? How could it be so ideological and so disrespectful of Amazon.com Inc (NASDAQ:AMZN) or even the reputation of its own organization?”
Amazon.com Inc (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.com Inc (NASDAQ:AMZN) 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.
Meridian Hedged Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a leading e-commerce company that operates a vast online marketplace for third-party sellers, sells its own products, and provides cloud infrastructure services through Amazon Web Services (AWS). We own Amazon because we believe AWS and advertising will continue to drive long-term revenue growth and profitability improvements. Although the stock didn’t perform well this quarter, we attribute this to a mix of short-term factors, including macroeconomic headwinds impacting consumer and enterprise spending, slowing retail revenue growth, and retail margin expansion falling short of market expectations. Additionally, increased investment in longer-term initiatives like satellite broadband and other experimental projects put further pressure on margins. Despite weaker-than-expected third-quarter guidance, we believe Amazon’s long-term growth story remains strong. We see multiple levers for improved profitability and free cash flow generation over time. We maintained our position in the company during the period.”
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.
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