We recently published a list of Top 10 Stocks to Watch as AI Trade Dynamics Change. In this article, we are going to take a look at where Amazon.com Inc (NASDAQ:AMZN) stands against other top 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.’”
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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).
A customer entering an internet retail store, illustrating the convenience of online shopping.
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.”
Overall, AMZN ranks 1st on our list of top stocks to watch as AI trade dynamics change. While we acknowledge the potential of 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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Disclosure: None. This article is originally published at Insider Monkey.
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