In this article, we will take a detailed look at the Top 10 Stocks to Watch as AI Trade Dynamics Change.
Aswath Damodaran from NYU Stern School of Business said in a recent program on CNBC that AI “buzzwords” are not boosting the market anymore as investors grow more concerned about capital spending.
“I’ve said about data centers we’ve gotten way ahead of the game. I mean, the AI product and service business, which ultimately is what has to pay for all of this, has not taken off in any substantial way. I’m hard-pressed to think about any company making significant money from the AI product and service business.”
Damodaran said that the “sobering” of the AI trade started in September last year and the DeepSeek breakthrough in China also had an impact on the industry.
“It’s part of, I think, what you see almost every buzzword in history in the last four decades. I call these the ‘bar mitzvah moment,’ where people wake up and say, ‘Okay, there’s a lot of promise here, but show me something that I can hang my hat on.'”
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
For this article, we picked 10 stocks Wall Street analysts have been talking about lately. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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10. Ralph Lauren Corp (NYSE:RL)
Number of Hedge Fund Investors: 30
Jim Cramer in a latest program on CNBC commented on a new bullish note on Ralph Lauren Corp (NYSE:RL) and said the company is “key” to this market.
“Goldman Sachs is trying to stop the rain in the apparel group, which has just been shelled endlessly, by saying that it’s time to buy Ralph Lauren. Now I’ve done a lot of work in this company. Patrice Louvet is doing a remarkable job. I was shocked at the stock declined so much. David, this stock is, believe it or not, the key to this market because if it can reverse itself and the rain can stop, then we have something to, let’s say, put our hat on. That’s a key. Ralph Lauren is the key to this market, and Goldman’s piece is cogent. I think it’s articulate.”
Goldman Sachs upgraded Ralph Lauren (NYSE:RL) to a Buy rating, citing the brand’s successful strategy and minimal exposure to near-term macro risks like tariffs, shifts in consumer spending, and challenges in department stores.
Goldman analyst Brooke Roach points to Ralph Lauren Corp’s (NYSE:RL) ability to drive market share and expand margins, noting continued growth in comparable sales and average unit retail (AUR).
“Although we’ve been optimistic about Ralph Lauren’s brand momentum in recent quarters, its elevated valuation had kept us cautious,” Roach says. However, she sees the pullback in apparel valuations, due to macro uncertainty and market volatility, as an opportunity to buy into companies like Ralph Lauren, which show resilience even amid a volatile environment.
9. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 41
Aquiles Larrea from Larrea Wealth Management said in a recent program on Schwab Network that he’s bullish on Palantir Technologies Inc (NASDAQ:PLTR) and thinks the stock can reach $100.
“The first thing being, okay, we had the government cuts, that’s affected the stock somewhat. It came down from about 115 or so, and that’s flirting right now with right below 90, basically. But more importantly, is that they are uniquely positioned in their particular area of AI, that we could see that stock be more than 115. As a matter of fact, I’ve come on, I’ve been following this stock, I first recommended it last January here on this network at 7, did very well yet last year, 17 bucks it was at. So I foresee that we still have a lot more, you know, think about this sector, it’s in its infancy, so there’s a lot more potential opportunity here, but it’s not going to be as fast, because right now, everything is starting to slow down in the sector. We’re starting to see productivity come down, we’re starting to see the economy pull. So we could see the next target for this particular stock at about 100, 101 right now.”
Baron Asset Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“Two software stocks that the Fund did not own, Palantir Technologies Inc. (NASDAQ:PLTR) and AppLovin Corporation, each gained more than 100% and accounted for 52% of the Benchmark’s gain during the quarter. At year end 2024, Palantir was valued at approximately 200 times its expected 2024 earnings, while AppLovin was valued at 80 times. The market cap of each exceeded $100 billion, and the two stocks represented nearly 8% of the Index. Neither company met our criteria for investment. The total impact on relative performance from Palantir and AppLovin was about 7 times higher than we have seen historically for two securities that are unique to the Benchmark, showing just how unparalleled the event was and something that we believe is unlikely to be repeated.”
8. Docusign Inc (NASDAQ:DOCU)
Number of Hedge Fund Investors: 42
Wall Street is focusing on Docusign Inc (NASDAQ:DOCU) after the company’s latest results.
“While bears push back on the Q4 outperformance given half of the upside was driven by early renewals, bulls point to improving gross retention and higher-than-expected IAM billings as well as the above-consensus billings guide for FY26,” said Morgan Stanley analysts, led by Josh Baer, in a recent investor note. “With FY26 billings guidance already starting at 8% cc, the path to double-digit growth has become more realistic.”
The company’s Intelligent Agreement Management, or IAM, is expected to see a double-digit percentage share of total subscription recurring revenue in fiscal 2026.
“This implies a ~5X increase in the IAM business to a ~$320M ARR run rate, which is especially impressive given most of the FY26 contribution will be from the SMB/mid-market segment despite IAM providing more value to enterprise customers given the higher level of complexity within enterprise agreement workflows,” Baer added.
Polen Focus Growth Strategy made the following comment about DocuSign, Inc. (NASDAQ:DOCU) in its Q3 2023 investor letter:
“We eliminated our remaining 1% position in DocuSign, Inc. (NASDAQ:DOCU). While the company remains the leader by a wide margin at the higher end of the digital signature market, it has become clearer to us that its addressable e-signature market is likely significantly smaller than we had believed or will take much longer to develop than we had anticipated. The lower end of the market is highly competitive. We were patient with our very small position. Impressive new management joined from Google and The Trade Desk in hopes of them being able to reinvigorate growth in core e-signature. Still, it does not appear that this is likely anytime soon with new management articulating that the company will need to develop new products to achieve higher levels of e-signature growth despite what we considered to be low penetration rates within existing e-signature products. As such, we used the proceeds of our sale as part of the funding for our Novo position.”
7. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Keith Fitz-Gerald, Fitz-Gerald Group CIO, said in a latest program on CNBC that while he’s frustrated with the latest selloff around Tesla Inc (NASDAQ:TSLA), he continues to believe in the company for the long term.
“You know, I think if we look at FSD, we look at autonomy, we look at all the things that Tesla is involved in, if you take Musk himself out of the equation for a few minutes, you can’t deny that that company continues to change the planet. So, this is one of those moments where I’m going to hold my nose, I’m going to continue to wait anyway, and I hope that I have enough shares at the end of the day.”
Analysts are looking beyond Elon Musk’s big claims and digesting the harsh reality facing the company. Tesla’s sales are falling all over the world despite the broader industry growth. For example, in California, the largest U.S. market for electric vehicle adoption and sales, Tesla sales fell about 12% year over year in 2024, causing its market share to drop from 60.1% in 2023 to 52.5% in 2024. Was it because Californians are buying fewer EVs? No. Californians purchased more than 2 million electric cars during the year, almost double when compared to the past two years.
Things aren’t looking good for Tesla in Europe, too. For example, in Germany, Tesla delivered just 1,429 new cars in February, down 76% from the same month last year. In contrast, battery-electric vehicle (BEV) registrations surged 30.8% during the month.
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“The largest relative detractors in the quarter were Tesla, Inc. (NASDAQ:TSLA) (not owned), Thermo Fisher Scientific, and Broadcom (not owned). We’ve spoken at length about our rationale for not owning Tesla. The stock enjoyed a 54% return during the quarter, with effectively all of the share price performance strength coming in the post-election period, as the market expressed a positive view on Elon Musk’s prominent role in the incoming Trump administration and its potential implications for Tesla. While we agree this development should be a net positive for Tesla and recognize the company’s interesting future prospects for autonomous driving and humanoid robots, its current valuation demands that shareholders pay primarily for potential innovations that have yet to materialize, with uncertain risks and timelines, presenting a different type of risk profile than we are comfortable with. Today, Tesla is an automobile manufacturer limited to the higher-income segment and is increasingly challenged to sell vehicles when interest rates are not zero. As such, we continue to question the company’s long-term growth profile, its ability to scale a large robotaxi service (which seems to be the source of euphoria in Tesla shares), and its corporate governance.”
6. Netflix Inc (NASDAQ:NFLX)
Number of Hedge Fund Investors: 121
David Nelson from Belpointe Asset Management said in a latest program on CNBC that Netflix Inc (NASDAQ:NFLX) has won the streaming wars and is growing faster than peers.
“Everybody’s looked at the streaming stocks, and you can either own a company that is trying to become the next Netflix or you can buy Netflix. The war is over, Netflix won. They added 19 million subscribers in their last quarter. That puts them over 300 million worldwide and counting. The added caveat is that they’ve now added advertising, and those margins on the bottom line are going to start to expand. It’s almost like a flywheel right now. They’re growing faster than their peers, so they can spend more on content. That, of course, increases engagement, and the cycle repeats itself. This is a no-brainer. This is one you have to own.”
Guinness Global Innovators stated the following regarding Netflix, Inc. (NASDAQ:NFLX) in its Q4 2024 investor letter:
“Netflix, Inc. (NASDAQ:NFLX). The streaming giant is a high-quality, fast-growing business with a solid growth runway that is being leveraged by a competent management team. Netflix transitioned to streaming well before competitors and is now the dominant streaming player. Its first-mover advantage allowed it to accrue a vast content library (when capital was cheap and investors were patient) and it has built on this moat with continued investment into original content. This includes a growing non-English catalogue, which has opened up international markets and allowed continued subscriber base growth, which now stands at 270m. Monetising its ad-tier subscribers, expanding penetration in developing markets, and incremental revenue-per-user increases will drive the growth outlook, while Gaming / Sports remains a potential growth avenue for the future. Although the valuation is not overly cheap in the absolute (priced at c.34x 1yr forward earnings), the stock has historically traded in a wide range (40x+ in the pre-COVID growth era and troughing at c.12x in late 2021 over growth fears), we feel the current quality-growth attributes of the firm justify this premium to the market. At present, the business and the narrative around it have turned a corner following concerns over profitability. Management actions have driven both subscriber numbers and profits up meaningfully in recent years, and investors look forward to the encouraging runway for growth – and most importantly profitable growth – that lies ahead. Even as management shift investor focus away from pure subscriber growth to user engagement, there is still a double-digit top-line forecast, while c.25% or more on the bottom line and a strong improvement in margins and free cash flow all make for an encouraging outlook.”
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Jim Cramer in a latest program on CNBC commented on a recent bullish note on Apple Inc (NASDAQ:AAPL) from Evercore, agreeing with the firm. Cramer thinks the selloff after Apple Inc’s (NASDAQ:AAPL) delay of the Siri update was overblown.
“Evercore comes out and says, “All right, you ready? They’re taking the price target from 260 to 275.” In other words, a different direction from what the stock has been selling. A lot of shorts in the name. Why are they short? Because Apple doesn’t have a strategy, but also because it’s still got the high multiple. People feel that the quarter is going to be weak. I’m going to go with the Evercore view because it’s about free cash flow, it’s about return to shareholders, and David, I think this is another one of these pieces that just says enough with the Siri gate. There was nothing strange about AI. It’s going to be a slower rollout. When you talk to the people who work at Apple, particularly someone by the name of Tim Cook, they don’t like to release things unless they’re good. And are they happy that they don’t have the best AI yet? Well, of course. Look, they’re a company that prides themselves in professionalism.So, I actually like this piece.”
Evercore ISI believes Apple Inc (NASDAQ:AAPL) is “well positioned” to have double-digit earnings growth through 2029.
“While investors over index on iPhone growth, we think there is less of a focus on AAPL’s ability to keep growing EPS & FCF growth consistently via gross margin (mix and pricing), operating leverage and buybacks,” analyst Amit Daryanani wrote in a note to clients. “Furthermore, AAPL is positioned to benefit from AI monetization without having to invest their FCF into GPUs, we see monetization occurring on multiple fronts over time.”
Columbia Seligman Global Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“The fund maintained a position in Apple Inc. (NASDAQ:AAPL) throughout the quarter through the release of the company’s new iPhone 16 in September. Company leaders were excited about the release of the new model, as this is the first model that will feature enhanced AI capabilities through the Apple Intelligence features. Sales for the first few weeks in October and November trailed behind year over year sales from the iPhone 15, as availability of Apple Intelligence was not compatible with all iPhone models. Apple announced a partnership with OpenAI that has allowed the integration of ChatGPT into the Apple ecosystem, separate from the core Apple Intelligence features. This partnership highlights continued progress from Apple to introduce AI capabilities into its products and we expect the iPhone 17 to have even more expansive AI capabilities, increasing potential demand for the new model that is on track to be released in 2025.”
4. Alphabet (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
John Belton from Gabelli Funds said in a latest program on Schwab Network that despite key challenges to search business and overlooked negative sentiment, he likes Alphabet (NASDAQ:GOOG).
“That’s a little bit more disliked right now in the investment community. I would defend Google here. Google’s trading at about 16 times next year’s GAAP earnings, and I know there’s structural questions about how search is going to fare in the era of generative AI. Is AI going to disrupt search? I mean, I would just say these types of questions about existential threats to Google search seem to come up every couple years, and Google just powers right through every time. I think what’s really interesting about Google is there’s a lot they can do to continue to drive efficiencies in their P&L and to take out costs and to improve margins. They have a new CFO who came from Eli Lilly. I think she seems very committed to driving cost efficiencies. And back to the valuation point, so long as Google can hit these nearer-term numbers, I think that’s sort of the catalyst to get this stock working again. So Google’s a name that has been beaten up, it’s lagged, there’s questions. I think it’s just too cheap for the type of quality.”
Alphabet’s search business is under threat from AI. However, its Gemini model has an edge over competitors because of the huge ecosystem Alphabet already has. For the end user, it’s easier to switch from traditional search to Gemini instead of moving to a completely new app like ChatGPT or Perplexity. So far AI competition hasn’t dented the company’s search revenue.
In the fourth quarter, Alphabet’s operating margin rose 32%. YouTube ad revenue jumped 14% and Cloud revenue skyrocketed by 30.1%. Google raked in $12.8 billion in FCF, marking a roughly 215% growth compared to the same period last year, despite heavy investments in AI. The stock has a forward (2026) P/E ratio of 20.8x, which makes it about 22% cheaper than the average company in its sector.
The market has been ignoring Alphabet Inc (NASDAQ:GOOGL)’s key secondary businesses and the stock remains undervalued despite concerns around AI search and regulatory onslaught.
Alphabet Inc (NASDAQ:GOOGL)’s secondary ventures in AI, autonomous driving, and other areas are making solid progress, especially in the Waymo robotaxi segment. Waymo has shown notable progress. Waymo vehicles now average about 30.6 autonomous rides per day—substantially higher than Uber’s average of 4.18 rides per driver daily, based on Uber’s 31 million daily trips and 7.4 million drivers last quarter. This performance underscores Waymo’s competitive edge in autonomous ride volume compared to traditional ride-hailing.
Burke Wealth Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
Alphabet: We parted ways with long-term holding Alphabet during the fourth quarter. We’ve owned Alphabet since the inception of the Focused Growth strategy so obviously, the company has many positive attributes that we admire. That remains the case. We have long contended that Google search is the best business in the world. However, developments over the past couple of years on the competitive front (generative AI search) and the regulatory/legal front have put the sustainability of Google’s search monopoly at legitimate risk for the first time since Microsoft launched Bing in 2009. We cut our weighting in Google in half last year as we wanted to take some time to better assess the threat of generative AI driven search to its business model. To be fair, this emerging threat has been something more akin to a gathering storm than a tornado. Capital continues to flow into the space both from start-ups and the Microsoft/Open AI collaboration. Thus far, this has not resulted in a material erosion of market share but it is certainly something requiring continued monitoring….” (Click here to read the full text)
3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Paul Hickey, Bespoke co-founder, said in a latest program on CNBC that investors sell NVIDIA Corp (NASDAQ:NVDA) shares despite positive statements from the company. The analyst believes that until this trend changes, the stock will remain volatile.
“I think in Nvidia, you know, could be the greatest thing since sliced bread. Jensen can say whatever he wants, but the most important thing, as we said when I was on the day they reported earnings, is the reaction to the news. If you see what happened in Nvidia today, the stock peaked right at 1:00 and investors sold into the news there. That’s been happening with every rally in Nvidia over the last six months, and until that pattern changes, it doesn’t matter what they say. Investors are selling into any strength in the stock. So, I think in that respect, for the stock itself, that’s not a great sign.”
The market will keep punishing Nvidia for not coming up to its gigantic (and sometimes unrealistic) growth expectations. About 50% of the company’s revenue comes from large cloud providers, which are rethinking their plans amid the DeepSeek launch and looking for low-cost chips. Nvidia’s Q1 guidance shows a 9.4% QoQ revenue growth, down from the previous 12% QoQ growth. Its adjusted margin is expected to be down substantially as well to 71%. The market does not like it when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company reports unimpressive growth.
Nvidia is facing challenges at several levels. Competition is one of them. Major competitors like Apple, Qualcomm, and AMD are vying for TSMC’s 3nm capacity, which could limit Nvidia’s access to these chips. Why? Because Nvidia also uses TSMC’s 3nm process nodes. Nvidia is also facing direct competition from other giants that are deciding to make their own chips. Amazon, with its Trainium2 AI chips, offers alternatives. Trainium2 chips could provide cost savings and superior computational power, which could shift AI workloads away from Nvidia’s offerings. Apple is reportedly working with Broadcom to develop an AI server processor. Intel is also trying hard to get back into the game with Jaguar Shores GPU, set to be produced on its 18A or 14A node.
Guinness Global Innovators stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“For a second year running, NVIDIA Corporation (NASDAQ:NVDA) was the Fund’s top performing stock, delivering a stellar return of +177.7% over the year. Since the beginning of last year, Nvidia’s ‘Hopper’ GPUs have been at the centre of exploding demand for chips powerful and efficient enough to facilitate the energy intensive requirements of AI processes within datacentres. Initially possessing over 95% of market share in these types of chips, Nvidia have been quick to entrench their position as the technological leader in the space, launching the successor to the current ‘Hopper’ GPU in March, Blackwell, inhibiting the likes of AMD and Intel making meaningful inroads in taking share of the fast-growing market. Compared to the previous iteration (Hopper) which is continuing to fuel Nvidia’s extreme revenue growth, the Blackwell chip is twice as powerful for training AI models and has 5 times the capability when it comes to “inference” (the speed at which AI models respond to queries). Throughout the year, Nvidia’s financial performance has remained resilient. Quarterly revenues hit $35.1 billion in their most recent quarter, beating consensus expectations by 6% and representing a +94% year-over-year increase. Additionally, Nvidia’s data centre segment, driven by the Hopper (H100) chip, grew fivefold over the past year, underscoring the sustained demand for advanced AI infrastructure. The H100 chip, priced at around $40,000, continues to see significant adoption due to its ability to enhance AI model training efficiency while lowering overall costs. This growth is expected to continue as companies invest in upgrading existing data centres and building new ones, with Nvidia well-positioned to capture a significant share of the estimated $2 trillion market opportunity over the next five years. There have been some concerns over Blackwell production delays causing share price volatility however, Nvidia has recovered swiftly, driven by positive earnings results through the year and assurances from management regarding future supply. Additionally, the release of the H200 chip promises to extend Nvidia’s technological leadership, ensuring continued momentum into 2025. While Nvidia’s valuation remains a topic of debate, the stock is not at a significant premium to history, and it still appears reasonable given its dominant market position, innovative prowess, and exposure to long-term secular growth trends in AI, cloud computing, and data infrastructure. As a result, Nvidia remains well-positioned to deliver sustained outperformance over the long term, making it a cornerstone of growth-oriented portfolios.”
2. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
John Belton from Gabelli Funds said in a latest interview with Schwab Network that competition from TikTok has “come and gone” for Meta Platforms Inc (NASDAQ:META).
“TikTok is the more direct competition for Meta. I think there’s a little bit more overlap between their users and the type of time that TikTok is competing for. It’s really more overlap with Meta. A couple of years ago, Meta came under a lot of pressure when TikTok usage was really rising. I think what Meta and Google, for that matter, have been able to do over the last couple of years is start to play a little more of TikTok’s game, specifically on Google with YouTube. They’ve used AI to drive better content recommendations and improve user engagement, which is something TikTok was so successful at years ago. I think Meta and Google have really caught up to TikTok over the last two years on that front. Looking forward, I think the peak competition from TikTok has already come and gone.”
In 2025, Meta sees total operating expenses in a range of $114-$119 billion, with 19-25% y/y growth. Capex is expected to rise 61-74% y/y to $60-$65 billion, compared to just $37.3 billion in FY24. Advertising rose strongly but analysts believe it should be seen in the context of higher political ad spend and holiday quarter perspective. In 2025, the company might not be able to keep reporting double-digit growth in ad pricing amid weaker consumer spending and a cautious macroeconomic backdrop.
In the long term, Meta shares are expected to grow because of AI. How?
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q4 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META): Investment Initiated: April 2018: Internal Rate of Return (IRR*): 22% *IRR represents the annualized rate of return on an investment, accounting for the timing and magnitude of cash flows over the holding period.
For META, our 22% IRR aligns closely with the company’s compounded growth in earnings per share (EPS) and free cash flow per share during the 6 years holding period.
Looking ahead, Meta is expected to grow its revenues, earnings, and free cash flow per share at mid-teens rates over the next two years. There’s a good possibility that it could exceed these estimates, considering the breadth of growth initiatives currently in place, such as advancements in Al, monetization of Reels, expansion into business messaging, and the ongoing development of the metaverse…” (Click here to read the full text)
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.
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