We recently published a list of the Big Tech Funds are Buying These 10 AI Stocks. Since Amazon.com Inc (NASDAQ:AMZN) ranks 1st on the list, it deserves a deeper look.
As mega-cap technology stocks continue to soar to new highs, the number of Wall Street analysts highlighting the “concentration of gains” problem are increasing. It’s more than evident now that just a handful of technology companies account for most of the gains in the market, thanks to the AI-fueled rally that is favoring only those companies that are leading in the AI arms race. Barclays analyst Venu Krishna recently said in a report that “Big Tech” has “largely carried the broader U.S. equity market through 1Q24 earnings results.” Krishna said that Q1 results showed the “ongoing dominance” of Big Tech over earnings revisions and margin upside.
“This makes it difficult to argue for a broadening of overweight allocations,” Krishna added. The analyst said this dominance comes at the expense of other sectors as funds cut their exposure to cyclical sectors like industrials, financials and discretionary to go overweight on tech.
Billionaire Steve Cohen’s New AI Fund
Billionaires and VCs are now planning to create their own AI-focused funds to attract money from investors and tap into the unprecedented opportunities unlocked by AI. Bloomberg recently reported that Steve Cohen’s Point72 Asset Management is planning to raise about $1 billion to make a new AI-focused hedge fund. The fund will bet “on and against” companies in AI hardware and semiconductor industries. The report said that billionaire Cohen will be overseeing the fund along with Eric Sanchez. The fund’s expected launch date is later this year or early 2025.
Billionaire Cohen is already ramping up his bets on AI. To see his AI investments this year, click 10 Best AI Stock Picks of Billionaire Steve Cohen.
Methodology
Since Krishna of Barclays talked about the rise of big tech funds and their concentration into AI, in this article we will take a look at the major AI stocks that form the portfolios of these funds and discuss their growth catalysts and long-term outlook. For that we first listed down all holdings of major tech funds like Technology Select Sector SPDR Fund and iShares Global Tech ETF and picked 10 AI stocks with the highest 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Jeff Bezos
Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 302
Amazon.com Inc (NASDAQ:AMZN) is one of the stocks Big Tech funds are buying amid the AI boom.
Investment firm UBS in a latest report named Trainium and Inferentia as Amazon.com Inc’s (NASDAQ:AMZN) strengths in the AI Enabling layer to profit from the $1.16 trillion opportunity. Trainium is a machine learning (ML) chip that AWS purpose-built for deep learning (DL) training of 100B+ parameter models. Inferentia is an AI accelerator for deep learning (DL) and generative AI inference applications.
Amazon Web Services is another major factor that makes Amazon.com Inc (NASDAQ:AMZN) well positioned in the Enabling layer of the AI value chain. However, UBS believes Amazon.com Inc (NASDAQ:AMZN) doesn’t have any offering in the Intelligence layer of the AI value chain. The firm labeled “chatbot recommendations” as Amazon.com Inc’s (NASDAQ:AMZN) strength in the application layer of AI.
Amazon.com Inc (NASDAQ:AMZN) is becoming an AI power house thanks to its AWS business, which saw operating margins cross 37% during the first quarter. AWS operating margins have now came in more than 30% for the past five straight quarters. Amazon.com Inc’s (NASDAQ:AMZN) revenue in the first quarter jumped 12.5% YoY and its adjusted EPS more than tripled. Revenue in North America and International segments grew as well. Analysts believe digital ads is another strong revenue stream for Amazon.com Inc (NASDAQ:AMZN), with revenue from the segment increasing 24% YoY to $11.8 billion in the first quarter.
Baron Fifth Avenue Growth Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its first quarter 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest retailer and cloud services provider. Shares increased 18.7% on quarterly results that exceeded consensus expectations, with revenue growth of 13% year-over-year and operating margins of 7.8% (up from 1.8% a year ago). We believe that Amazon is well positioned in the short to medium term to continue improving its core North American margins, which have reached 6.1% in the fourth quarter, the seventh straight quarter of margin improvement and an overall improvement of 800bps. Amazon has been rearchitecting its fulfillment network, improving efficiency, reducing cost-to-serve and accelerating delivery speeds thanks to initiatives such as regionalization, with the number of items delivered during the same day or overnight increasing by nearly 70% year-over-year. Reducing the cost to serve also enables Amazon to sell lower priced items and expand its addressable market to everyday purchases. Additionally, Amazon continues to benefit from its fast-growing, margin-accretive advertising business winning market share in digital advertising thanks to its structural advantages of a closed loop system, which enables a deterministic calculation of Return on Ad Spending. We also believe that e-commerce still has long duration growth ahead as it still accounts for less than 15% of retail. Similarly, Amazon’s cloud service, AWS, remains relatively early in its S-curve with cloud representing around 13% of worldwide IT spending13 incremental tailwinds across the three layers of the GenAI stack – infrastructure with NVIDIA’s own AI chips (Trainium and Inferentia) as well as with its offering of NVIDIA chips, platform (Bedrock), and applications (first and third party).”
Overall, Amazon.com Inc (NASDAQ:AMZN) ranks 1st on Insider Monkey’s list titled Big Tech Funds are Buying These 10 AI Stocks. While we acknowledge the potential of Amazon.com Inc (NASDAQ:AMZN), our conviction lies in the belief that 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 Amazon.com Inc (NASDAQ:AMZN) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.