1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
John Belton from Gabelli Funds in a recent interview with Schwab Network made the case for Amazon.com Inc (NASDAQ:AMZN).
“Amazon is still a core holding for us. I think that’s a company that, talk about attractive valuation, I mean Amazon’s trading somewhere in the low 20s on a 2026 GAAP earnings multiple. So, you know, that really does not feel that demanding for a company with durable double-digit topline growth and this really nice margin expansion story, specifically at their retail business with, oh by the way, a really compelling AI story. One of the big beneficiaries of, and leaders in, machine learning, AI, generative AI. They’re also doing a lot when it comes to AI in unlocking efficiencies at their core retail business. So Amazon’s a name where we think no matter what the sort of macroeconomic backdrop is, that’s a big business that should continue to compound very nicely. Trading at a valuation the stock really hasn’t seen before to the downside, so I think that risk-reward is very good in Amazon.”
Despite weak guidance, Amazon 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’s stock is priced at a profit multiple of 30.2x. This valuation may look rich, but when we incorporate AWS growth, the stock has more upside potential.
Diamond Hill Large Cap Concentrated Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Among our top individual contributors in Q4 were General Motors and Amazon.com, Inc. (NASDAQ:AMZN). Internet retail and cloud infrastructure company Amazon continues taking share in non-discretionary categories. Retail margins also increased in the quarter, particularly international margins. Amazon Web Services’ (AWS) revenue growth accelerated in the quarter, and, despite increased AI-related capital expenditures, margins improved to all-time highs.”
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 time frame. 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: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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