In this article, we will take a detailed look at Jim Cramer’s Top 11 Trump Trades: Winners and Losers.
Jim Cramer in a latest program talked about the consequences of the failed assassination attempt on Donald Trump and mentioned a few stocks that could benefit if the former President comes to power again.
“You are sticking your head in the sand if you think nothing has changed after the failed assassination attempt on the now-official Republican nominee for President.”
Cramer said that the “frightening moments” of the assassination attempt have indeed “cut in the favor” of Trump’s win and he was “already leading in the polls.”
Cramer recalled the days when he was the anchor of Kudlow & Cramer show and Biden was a senator from Delaware. Cramer said Biden once told him that he was the “poorest senator out of one hundred because he owned no stocks.”
“He was actually bragging about it,” Cramer said.
Cramer said that Joe Biden is not the “champion” of stocks and he’s “on board with labor.”
Jim Cramer’s Thoughts on Donald Trump
Here’s what Cramer said about Trump”
“In the many years I’ve known Trump and I have known him fairly well, he’s been wildely pro stock market, always watching it like a hawk. He loves bantering about the stock market.”
Cramer said that even though Trump was in “real estate, he enjoyed stocks.”
Jim Cramer added that Trump always thought there was too much regulation and was also “wildly” pro-oil and gas. The CNBC host said since Trump cannot see the stock market going down and sees the market gains as a positive factor even for his presidency, his arrival in the White House could boost stock portfolios.
“Hate him or like him, he’s good for your portfolio.”
For this article watched the latest programs of Cramer where he mentioned stocks that could benefit from a Trump presidency. 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).
11. Coterra Energy Inc (NYSE:CTRA)
Number of Hedge Fund Investors: 40
Jim Cramer has repeatedly pitched Coterra Energy Inc (NYSE:CTRA) as a promising stock to buy over the past several months. In his latest program he said Coterra Energy Inc (NYSE:CTRA) could also gain if Trump comes to power.
Cramer’s charitable trust also owns a stake in the company. He said Coterra Energy Coterra Energy Inc (NYSE:CTRA) could be a “winner” if there’s a spike in natural gas orders.
One of the reasons why Cramer has been recommending Coterra is the rising energy demand on the back of the data center boom. During Q1 earnings call, Coterra Energy Inc (NYSE:CTRA) management talked about data centers and AI-led demand:
In spite of near-term headwinds, we remain wholly optimistic on natural gas. With coming LNG export capacity, near-term power demand and the evolving discussion about the long-term power demands of AI-driven data center needs, it is hard not to be constructive on the future of natural gas.
We watch this conversation closely and have heard forecast for incremental natural gas demand driven by growing data center consumption that range from 3 Bcf per day to 30-plus Bcf per day, by the year 2030. We will welcome increased demand anywhere within that range.
Read the entire earnings call transcript here.
Coterra Energy Inc (NYSE:CTRA) is expected to benefit from various catalysts in the future. Data from Natural Gas Intelligence says there would be a 76% increase in LNG support capacity by late 2024 into 2025 amid expectations of a lift of ban on LNG exports. Data centers, EVs and an overall rise in economic activity in the future will also lift gas demand, helping stocks like Coterra Energy Inc (NYSE:CTRA).
The company is expected to generate about $1.3 billion in 2024 free cash flow. Coterra Energy Inc (NYSE:CTRA) raised its full-year oil production forecast by 2% to 3% due to quicker cycle times and strong well performance. It also maintained its natural gas production outlook despite recent overperformance. Improved natural gas prices in the second half of 2024 are expected to prompt the completion of deferred wells.
Diamond Hill Mid Cap Strategy stated the following regarding Coterra Energy Inc. (NYSE:CTRA) in its fourth quarter 2023 investor letter:
“Other bottom contributors in Q4 included Coterra Energy Inc. (NYSE:CTRA), VF Corporation and Ciena Corporation. Coterra Energy is an oil exploration and production company focused in West Texas’s Permian Basin and Oklahoma. Though production is beating expectations, shares traded in sympathy with the broader industry, which declined alongside falling oil and natural gas prices.”
10. New Fortress Energy Inc (NASDAQ:NFE)
Number of Hedge Fund Investors: 18
Jim Cramer thinks Donald Trump will “immediately suspend” President Biden’s ban on LNG exports, which has “crushed” New Fortress Energy Inc (NASDAQ:NFE), one of his “favorites.” Cramer also called New Fortness a “revolutionary company run by Wes Edens. Cramer said New Fortress Energy Inc (NASDAQ:NFE) would be the “best” stock to own for energy exports.
The company operates a vertically integrated business model focused on natural gas and liquefied natural gas (LNG). It develops, finances, constructs, and operates natural gas infrastructure, including LNG terminals and power plants.
New Fortress Energy Inc (NASDAQ:NFE) shares have lost about 30% so far this year. The ban on LNG export isn’t the only problem haunting the company. New Fortress bears are pointing to the company’s debt and financing problems.
New Fortress Energy Inc (NASDAQ:NFE) faces significant upcoming debt maturities, with $872 million in September 2025 Secured Notes and $1.487 billion in September 2026 Secured Notes. The $750 million Revolving Credit Facility matures in 2026, contingent on refinancing the 2025 notes, and a failure to do so can make the Revolver maturity come early by 60 days prior to the 2025 notes. Similarly, the $772 million Term Loan B, maturing in October 2028, moves forward if the Secured Notes are not refinanced. This scenario puts nearly $4 billion of debt at risk of maturing within the next few years.
As of the end of last year the company had just $155 million in cash, which is significantly lower than what New Fortress Energy Inc (NASDAQ:NFE) reported in 2022. Its total debt is about $6.5 billion with total liabilities of about $8.7 billion. However, with plant sales and new financing, as well as a possible lift on LNG exports, the company may turn out to be a good opportunity for long-term investors.
New Fortress Energy Inc (NASDAQ:NFE) recently announced to sell its liquefaction and storage facility in Miami, Florida, to a U.S. middle-market infrastructure fund.
9. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Investors: 59
Morgan Stanley (NYSE:MS) is another financial stock Cramer believes could benefit from a Trump presidency since Donald Trump is not a big believer in financial regulation.
Cramer said that his charitable trust also owns a stake in Morgan Stanley (NYSE:MS).
8. Starbucks Corp (NASDAQ:SBUX)
Number of Hedge Fund Investors: 69
Jim Cramer thinks Starbucks would be a loser if Trump comes to power amid the possibility of trade wars with China.
Starbucks Corp (NASDAQ:SBUX) fell after the company posted weak fiscal Q2 results and guidance, as customers in China and across the globe cut back on spending. However, many analysts believe the stock is presenting an opportunity for long-term investors. Based on Wall Street’s 2025 EPS estimate ($8.67) for Starbucks Corp (NASDAQ:SBUX), the stock is trading at a forward P/E multiple of 19, which is not much higher than the industry median of 14.97. Given Starbucks Corp’s (NASDAQ:SBUX) brand value and moat, the company stands out amongst competitors. The stock’s current P/E of 22 is also much lower than Starbucks Corp’s (NASDAQ:SBUX) five-year average P/E of 30. SBUX is one of the top dividend stocks to buy in 2024.
Madison Investors Fund stated the following regarding Starbucks Corporation (NASDAQ:SBUX) in its Q2 2024 investor letter:
“We purchased shares in Starbucks Corporation and Deere & Company. Starbucks Corporation (NASDAQ:SBUX) is a global specialty coffee chain with an iconic brand that resonates with consumers around the world. Its loyalty rewards program is a true differentiator, with its unmatched scale (nearly 33 million members in the U.S. alone), and convenient mobile ordering and customization capabilities.
The company has struggled over the last handful of years due to the pandemic shut-downs, the lingering traffic declines from workers no longer commuting to city centers, intensifying competition in China, and inflation in wages, freight, and packaging. But its biggest challenge is actually one of its own making. It’s a victim of its own success.
Over the last decade it has led the industry in shifting its business mix from hot beverages to cold beverages, and from in-store purchases to the use of mobile ordering and drive-thrus. These shifts have been hugely beneficial to Starbucks, intensifying customer loyalty, raising the frequency of purchases, appealing to younger consumers, and raising average selling prices. Yet, these benefits came at a very high price. The speed at which these shifts occurred left Starbucks management unprepared to handle the increase in operational complexity and customer expectations of faster service. The result was a noticeable decline in both customer experience and store employee satisfaction…” (Click here to read the full text)
7. Cheniere Energy Inc (NYSE:LNG)
Number of Hedge Fund Investors: 69
Jim Cramer recently said that Cheniere Energy Inc (NYSE:LNG) would be the “second best” stock to benefit from a possible lift of ban on LNG exports.
Cheniere Energy Inc (NYSE:LNG) is one of the best AI energy infrastructure stocks to buy according to Tortoise Capital Advisors.
In a recent earnings call, the company’s management talked about AI-driven demand:
“But we look at things, We see roughly a doubling of demand globally by 2030 from about 2% to about 4% of power for data centers, obviously, driven in part by these more power-hungry chips. And we think that the easiest places and all the guys who are developing them, by the way, have huge teams that are looking for pockets of opportunity where there is the ability to add this capacity. One of the more interesting dynamics, if you will, is that Japan has been forecasting a dramatic decline in its power use by about 12% from ’22 to 2030. The easiest places in the world to add this capacity is where this capacity exists.”
Wolfe Research expects Cheniere Energy Inc (NYSE:LNG) to benefit if Donald Trump assumes the Presidential office.
Cheniere Energy Inc (NYSE:LNG) is one of the biggest LNG companies in the world. The stock is set to grow amid rising demand for LNG across the world. According to a latest report by Shell, the global gas demand is expected to rise 50% by 2040 amid increasing LNG appetite in Asia. Cheniere Energy Inc (NYSE:LNG) is operating with a wide moat since it’s the second biggest LNG company with a huge production infrastructure. Cheniere has facilities with 45 million metric tonnes per annum as of this year. Its Sabine Pass LNG Terminal in Louisiana has six operational trains. Cheniere Energy Inc (NYSE:LNG) has already secured orders or agreements for 95% of its anticipated production capacity extending into the middle of the year 2030.
During its Q1 earnings call Cheniere Energy Inc (NYSE:LNG) talked about this and guidance:
Today, we are reconfirming our full year 2024 guidance ranges of $5.5 billion to $6 billion in consolidated adjusted EBITDA and $2.9 billion to $3.4 billion in distributable cash flow. As we’ve noted previously, 2024 represents our most contracted year-to-date. We still expect 2024 to represent a trough year for EBITDA as we expect our results to trend higher after this year as Stage 3 commences and eventually reach its run rate by the end of 2026.
As a reminder, our operating and financial results and forecast reflect some degree of seasonality as typically higher winter production at our facilities, coupled with typically higher pricing international markets, can provide for a somewhat seasonal weighting of our results to the colder quarters versus the hotter ones. For the balance of the year, we don’t expect meaningful changes to our earnings forecast for the remaining 3 quarters with an immaterial amount of unsold capacity remaining. We still expect to produce approximately 45 million tonnes of LNG this year, inclusive of planned maintenance at both sites, and our guidance continues to reflect only contributions from completed portfolio optimization activities as we do not forecast potential contributions from future opportunities.
TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding Cheniere Energy, Inc. (NYSE:LNG) in its first quarter 2024 investor letter:
“The strategy’s top detractor was the -5% retrenchment from Cheniere Energy, Inc. (NYSE:LNG), which operates liquid natural gas (LNG) liquefaction facilities for the global transportation of LNG. While revenues and earnings were as expected, management’s initial guidance for the new fiscal year was lower than anticipated. Cheniere was conservative—appropriately so in our view—regarding plant volumes as election-year noise surrounding the regulatory environment could dampen LNG exploration and export activities.”
6. Nike Inc (NYSE:NKE)
Number of Hedge Fund Investors: 71
Jim Cramer thinks that if Donald Trump comes to power, Nike could “remain a loser” because it’s exposed to China.
Nike Inc (NYSE:NKE) has indeed been a loser this year, down about 31% so far. Last month the company posted fiscal fourth quarter results. Nike is getting battered in China amid declining sales as consumers cut back on spending due to rising inflation. Nike Inc (NYSE:NKE) also cut its fiscal first-quarter guidance as sales are likely to decline in their upcoming Q1.
However, Nike Inc (NYSE:NKE) bulls believe the company will be able to come out of this crisis following rate cuts and easing of global economic situation. Nike remains a giant, with about $11 billion in cash, sufficient to cover its $8.9 billion long-term debt. Nike Inc (NYSE:NKE) is also the leader in the footwear market which is expected to grow at a CAGR of 6.86% from $173.89 billion in 2024 to $242.33 billion by 2029. Nike Inc (NYSE:NKE) sales in the market are about 100% higher than Adidas, the second-biggest player in the market.
Another strong reason to own Nike Inc (NYSE:NKE) shares is its dividend, which has grown for two decades now without a break.
Nike Inc (NYSE:NKE) has a forward P/E ratio of about 23, about 35% lower than its five-year average. This makes the stock undervalued for long-term investors with a large risk appetite.
ClearBridge Large Cap Growth Strategy stated the following regarding NIKE, Inc. (NYSE:NKE) in its Q2 2024 investor letter:
“Other moves during the quarter included sales of United Parcel Service (UPS) and NIKE, Inc. (NYSE:NKE). Nike has become overly reliant on key platforms, like Jordan, for revenue growth while innovation in areas like running has lagged. Nike could face continued revenue and profit pressure as it invests to re-invigorate innovation and re-position the business back toward wholesale outlets. As such, we are seeking out better ways to participate in the global consumer recovery in companies where earnings estimates have already reset.”
5. Wells Fargo & Co (NYSE:WFC)
Number of Hedge Fund Investors: 73
Jim Cramer recently listed Wells Fargo & Co (NYSE:WFC) as a financial stock that can benefit from a Trump presidency. Cramer’s charitable trust also owns a stake in the company. Wells Fargo & Co (NYSE:WFC) recently said it expects to increase its third quarter 2024 common stock dividend by 14 percent to $0.40 per share.
In another program, Jim Cramer was asked by a caller whether Morgan Stanley is a good stock pick in the banking industry. Cramer instead pitched Wells Fargo & Co (NYSE:WFC) as a better buy.
“The only one I’d still buy in that group is Wells Fargo of Charlie Scharf (WFC CEO). That would be the stock to buy.”
Like Cramer, many other analysts are praising Charlie Scharf’s plans to make Wells Fargo & Co (NYSE:WFC) efficient. During the first quarter the company saw a 10% increase in investment banking revenue, while trading revenue jumped 15% increase YoY, amounting to $1.8 billion. The bank has notably expanded its credit card portfolio, with card balances increasing by 30% from FY19 to FY23. This growth is fueled by new product offerings and a focus on high-quality customers, with over 80% of credit cardholders having FICO scores above 660.
In 2024 Wells Fargo & Co (NYSE:WFC) is expected to generate about $23 billion of pre-tax income, and $25 billion in 2025. Analysts believe the Federal Reserve could lift restrictions (imposed following compliance issues in 2016) from the bank, including the asset cap, this year, unlocking further growth catalysts.
ClearBridge Value Equity Strategy stated the following regarding Wells Fargo & Company (NYSE:WFC) in its fourth quarter 2023 investor letter:
“Stock selection in the financials sector proved to be the largest contributor to relative outperformance. Banking stocks such as Wells Fargo & Company (NYSE:WFC) saw their share price rise during the quarter as investors anticipated Fed rate cuts that would reduce deposit costs while retaining economic strength and minimizing the risk of credit losses.”
4. JPMorgan Chase & Co (NYSE:JPM)
Number of Hedge Fund Investors: 112
Jim Cramer thinks JPMorgan Chase & Co (NYSE:JPM) can gain if Donald Trump becomes the President in the upcoming election.
“President Trump was not a big believer in financial regulation or at least arduous financial regulation” which is great for banks including JPMorgan Chase & Co (NYSE:JPM), Cramer said.
Trump recently said in an interview that he’d be open to consider JPMorgan CEO Jamie Dimon for the position of Treasury secretary.
“I have a lot of respect for Jamie Dimon,” said Trump.
Jim Cramer is bullish on JPMorgan Chase & Co (NYSE:JPM) and said in a recent program that he believes the stock could touch the $1 trillion market cap. Cramer said that JPMorgan Chase & Co (NYSE:JPM) is one of the “best banks in the world” and sells only 12 times earnings. The CNBC host said this multiple is “way” too low and “way lower” than the average stock for the S&P 500.
“If the Fed starts cutting I think this one can undergo some huge multiple expansion.”
While JPMorgan Chase & Co (NYSE:JPM) managed to beat estimates on the latest earnings report, its earnings were helped by one-time benefit from its Visa stake exchange. The bank also increased its provision for credit losses that shows expected problems from bad loans ahead. However, amid signs of easing inflation and JPMorgan Chase & Co’s (NYSE:JPM) dominance in the banking industry, the risks that the bank faces are capped.
In its latest report JPMorgan Chase & Co (NYSE:JPM) kept its net interest income guidance it gave in May. Following a steep decline in 2020 and 2021 during the COVID-19 pandemic, its net interest income has nearly doubled from a low of $52.3 billion in FY 2021 to $91.6 billion currently (on a TTM basis). Upbeat NII is driven by a favorable interest rate environment and stable loan balances.
While JPMorgan Chase & Co (NYSE:JPM) looks undervalued based on its P/E ratio when compared to the broader market, it’s not a fast growth stock. Wall Street expects JPMorgan Chase & Co (NYSE:JPM) earnings to grow just over 1% over the next five years annually.
Its dividend yield is 2.2% with over a decade of consistent dividend increases. In this backdrop, JPMorgan Chase & Co (NYSE:JPM) is a suitable income stock for investors looking for stability instead of strong growth.
Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
3. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Apple Inc (NASDAQ:AAPL) is one of the stocks that could see troubles if Donald Trump comes to power because of the China factor, according to Cramer. He said that Apple Inc (NASDAQ:AAPL) has high exposure to China as the company makes “Chinese phones with Chinese labor”
However, there’s a positive factor for Apple, too, if Trump comes to the White House, according to Cramer. He thinks Apple Inc (NASDAQ:AAPL) has been “abused” by the government on several regulatory issues.
“Neither of the candidates seems like Big Tech but Trump administration will certainly be more circumspect about hammering great American tech companies.”
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.”
2. Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Cramer thinks Alphabet Inc Class C (NASDAQ:GOOG) is one of the big tech stocks that can get relief from regulators if Trump comes to power.
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 integrate 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.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 302
Jim Cramer thinks Amazon.com Inc (NASDAQ:AMZN) could benefit from a Trump presidency amid regulatory factors. The CNBC host said Amazon has been in the “crosshairs” with the FTC.
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.
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.
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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