1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Dan Crowley from Nightview Capital explained in a latest program on Schwab Network his “three pillars” for Amazon’s future stock price growth:
“We see kind of three pillars for kind of the next leg up in the Amazon.com Inc (NASDAQ:AMZN)
Equity. It’s been trading kind of sideways for a long period of time. I think two years ago, the retail valuation was left for dead and people only thought AWS could drive it going forward. We’ve seen a right-sizing of that business after COVID, and again, we see the possibility for real-world AI to drive earnings expansion there.
And then we’ve been incredibly heartened by the progress that we’ve seen from AWS on the AI side. And again, this is both from on-premise and the AI transition, something we see lasting throughout the decade. So there’s kind of three pillars and a lot under one hood.”
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.
Qualivian Investment Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN): Amazon’s Q2 2024 results missed consensus revenue expectations slightly while beating EPS expectations nicely. Revenue grew 10.0%, including continued reacceleration in AWS (Amazon Web Services) which grew 19%; however, North American and International ecommerce revenue growth both showed slight deceleration in their growth rates from prior quarters. Advertising revenues grew 20%, which decelerated a bit from prior quarters as well.
Encouragingly, the company continued its streak of delivering impressive cost efficiencies in Q2 with operating margins jumping 420 bps vs. Q2 2023. Q3 2024 guidance was also a bit lower than consensus expectations sparking some short-term concerns about the strength of the consumer. We remain comfortable with our long-term outlook for Amazon’s ecommerce and AWS businesses, and expect they have new avenues of growth to exploit in scaling their advertising and generative AI business in the years ahead. However, we recognize that there is trepidation about the level of capex spending required to scale their generative AI business.”
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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