1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Funds Investors: 286
Evercore ISI’s Mark Mahaney mentioned in a latest program on CNBC why he believes Amazon.com, Inc. (NASDAQ:AMZN) is a cheap stock and discussed two key potential upcoming growth catalysts:
“At 25 times earnings, I think that’s the cheapest multiple you’ve ever had a chance at looking at Amazon. Here are the two product catalysts coming up: we’ve got a Kuiper launch, so this is going to be a long-term build. I’m really intrigued by Amazon’s ability to succeed in broadband satellite internet access, which I think is a really interesting market that Starlink has shown us. Then you’ve got Alexa Plus coming to your Alexa device, and there are 600 million of these worldwide. So I think there’s an interesting Trojan horse out there that could get generated and become a lot more useful. In terms of the narrative shifting, I’m particularly intrigued by the ability of AWS, their cloud business, to re-accelerate in the back half of the year. I spent a lot of time with private companies here in San Francisco, in the Valley, and we’re seeing dramatic growth rates for some of these private companies in terms of ramping up their revenue at the application layer. I think AWS is the company those app developers are most relying on, and I think that’s going to start showing up in the numbers. If you get an acceleration in the highest-margin business in Amazon, that’s a good thing. You want to buy the stock ahead of that.”
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 might look rich, but when we incorporate AWS growth, the stock seems to have more upside potential.
RiverPark Large Growth Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN): Amazon was our top contributor in the fourth quarter following third quarter results of slightly better than expected revenue and much stronger than expected operating income. 3Q operating income of $17.4 billion exceeded company guidance of $11.5-15 billion (and Street estimates of $14.7 billion), driven by margin expansion across all three major segments, including gross/net margins of 38% at AWS, up from 30%. In addition, the company reported an acceleration in e-commerce demand both domestically and internationally, and accelerated growth of Prime paid memberships. The company guided to 4Q operating income of roughly $18 billion driven by the same positive factors that impacted 3Q.
With its ability to continue its market share gains in its three leading businesses (e-commerce, web services and online advertising), plus a multi-year operating margin expansion opportunity (from improved e-commerce margins and greater contribution from the faster growing, higher margin AWS and advertising segments), we believe Amazon remains one of the best-positioned global growth companies in the world.”
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.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the Top 10 AI Stocks News: Latest Analyst Ratings And Upgrades and the 9 AI News Updates Investors Should Not Miss.
