Amazon.com Inc. (NASDAQ: AMZN) is making waves in the AI investment space, ranking as the most buzzing AI stock this week, backed by strong analyst ratings and hedge fund interest. With 286 hedge fund investors, Amazon continues to dominate the conversation around AI and cloud infrastructure.
AWS Growth and Challenges
Despite some concerns about Amazon Web Services (AWS) lagging behind competitors like Azure and Google in AI-related advancements, analysts remain optimistic. Barton Crockett of Rosenblatt stated, “AWS hasn’t really been accelerated by AI yet, but that could happen—probably will happen.”
AWS recently reported $27.5 billion in revenue, marking a 19% year-over-year growth and contributing significantly to Amazon’s overall operating income. AWS’s annualized revenue is projected to reach $110 billion, with expectations of $125-130 billion by FY 2025 if growth remains around 20%.
Financial Outlook
For the current quarter, Amazon anticipates revenue between $181.5 billion and $188.5 billion, reflecting growth of up to 11%. Despite its higher forward P/E ratio of 32.9 compared to the big tech average of 25.5, Amazon’s robust earnings trajectory suggests significant upside potential.
If Amazon maintains a 25% annual EPS growth rate, its EPS could reach $9.25 by FY 2027, positioning the stock with a fair value exceeding $300 based on its historical average P/E ratio of 35x.
Analysts’ Perspective
Paul Hickey of Bespoke Investment Group highlighted AI’s transformative impact on the market, likening ChatGPT’s influence to that of Netscape and AOL for the internet. He emphasized, “This is an AI bull market… There’s a lot more investment to go.”
Crockett added that AWS’s potential in the AI space and Amazon’s strong margin story create a compelling case for the stock, despite challenges in the top-line growth of its cloud business.
Hedge Fund Sentiment
Parnassus Core Equity Fund noted in its Q3 2024 investor letter that its strategic addition of Amazon shares, following a price dip, yielded significant returns as sentiment around the consumer sector improved.
Amazon.com Inc. (NASDAQ: AMZN) continues to attract attention as a leader in the AI and cloud infrastructure space, propelled by its strong financial performance and AWS growth. While Amazon leads the pack, analysts suggest exploring under-the-radar AI stocks that may offer greater returns in the near term.