We recently published a list of Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. Since Amazon.com Inc (NASDAQ:AMZN) ranks 1st on the list, it deserves a deeper look.
The reality is finally catching up to the AI hype as investors await to see ROI on huge spending on AI chips and infrastructure. Dan Niles, Niles Investment Management founder and portfolio manager, during an interview with CNBC last month, called the decline in Mag. 7 stocks after Q2 earnings representative of a “fundamental shift” in the industry.
“I know it’s popular to talk about AI because these stocks are driving the market, but at a certain point, you want to get a return on all of this money you are investing. And if your forward revenue estimate is going lower not higher but your CapEx is going up, at some point those two things are going to collide.”
Niles said that major tech companies went through a “digestion” period after seeing huge returns during the COVID-19 pandemic days, and he expects the same to happen as we move into the next year.
The analyst said that on an equal-weighted basis, the broader market is up when compared with Mag. 7 stocks. He recommended investors to buy the stocks that would benefit from rate cuts. These include consumer staples, utilities, telecom services, etc.
Niles said the other 493 companies could drive the market to new “all-time record highs.”
For this article, we picked 10 AI trending stocks that are moving after latest analyst ratings and earnings. With each company 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Dan Niles, Niles Investment Management founder and portfolio manager, said the following while talking about Amazon.
“Ecommerce, I thought there’d be share gains.. they could do that profitability. Margins came in worse than people thought.”
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
Overall, Amazon.com Inc (NASDAQ:AMZN) ranks 1st on Insider Monkey’s list titled Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. 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 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.