1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jessica Inskip, Director of Investor Research at StockBrokers, explained in a latest program on Schwab Network her top three reasons to be bullish on Amazon.com (NASDAQ:AMZN).
“I really do like Amazon, and there’s three primary reasons. First and foremost, of course, is AI. They have AI-driven cloud growth as AI agents are being developed, and that’s extremely important. The other is the impending TikTok ban. A ban may not be imminent, but platform diversification certainly is. One of the next innovations that I think we’ll see with the e-commerce space is the use of short-form video. That’s the next innovation that could lead to retail margin expansion with e-commerce sales from the Amazon front. Then the third, and maybe overlooked, is the AWS operational cost. I think that would be lowered actually with a stronger US dollar. The US dollar, as we see, is strengthening. I heard your previous guest even say that as well, and since many of AWS’s operational costs tend to be outside of the US, therefore that stronger dollar would actually just naturally help lower those operational costs. So, a lot working for Amazon in terms of margin expansion.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology.
Vulcan Value Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“There were five material contributors to performance: Amazon.com, Inc. (NASDAQ:AMZN), Salesforce Inc., Live Nation Entertainment Inc., Carlyle Group Inc., and Alphabet Inc. Amazon.com is a dominant, world class company with powerful secular tailwinds in place including its e-commerce penetration, digital advertising growth, and the cloud transition. Amazon reported strong results during the quarter. The market is beginning to reward the company for its untapped margin opportunity in the core retail business as its consolidated operating margins expanded.”
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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