1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Gil Luria, DA Davidson head of technology research, said in a latest program on CNBC that Amazon.com Inc (NASDAQ:AMZN) shares came under pressure after the company’s latest quarterly results because of guidance. He said the company has taken its retail business to “another level” and maintained its Cloud business growth.
“If you were to focus on the two key numbers here, AWS growing 19%, which is the same as last quarter, means Amazon.com Inc (NASDAQ:AMZN) has regained the leadership in AI. Both Microsoft Azure and Google Cloud decelerated in the quarter, in fact, significantly decelerated in Google’s case, while Amazon has been able to maintain the same growth while expanding margins. And then on the retail side, 8% margins in North America is unprecedented. It’s by far the highest they’ve ever had, and it means they’ve taken that retail business to another level in terms of profitability. So those things are great.”
Despite weak guidance, Amazon.com Inc (NASDAQ:AMZN) could easily surpass $100 billion in operating income within the next two years because of its AWS growth engine. In the latest quarter, Amazon Web Services sales jumped 19% and operating profit for the segment jumped 62% in 2024 on an annual basis.
The market is currently forecasting $6.27 per share in profits this year (a 13% YoY growth) and $7.59 per share next year (a 21% YoY growth). Amazon.com Inc (NASDAQ:AMZN) stock is priced at a profit multiple of 30.2x. This valuation might look rich, but when we incorporate AWS growth, the stock seems to have more upside potential.
Alger Spectra Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a renowned online retailer and leader in cloud computing. The company’s Amazon Web Services (AWS) division offers utility-scale cloud solutions that support corporate America’s digital transition. During the quarter, Amazon’s shares contributed to performance as the company reported better-than-expected fiscal third-quarter results, with revenues and earnings beating analyst estimates. Operating margins expanded to 11%, driven by efficiency gains in logistics and robust AWS performance. Notably, AWS revenue growth accelerated during the quarter, along with recording its highest-ever operating margin of 38.1%, driven by easing cloud cost optimizations, renewed workload migrations, and an increasing contribution from AI workloads. On their earnings call, management highlighted plans to increase capital expenditures to enhance their technology infrastructure, catering to the surging demand for AI-driven computing.”
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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