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Is Amazon.com Inc (NASDAQ:AMZN) the Best AI Stock to Buy Now?

We recently published a list Top 10 Most Popular AI Stocks by Brad Gerstner. Since Amazon.com Inc (NASDAQ:AMZN) is at No. 6 on the list, it deserves a closer look.

Brad Gerstner, the founder of Altimeter Capitalhas been a big proponent of AI and tech stocks in general. Recently, in an interview with Scott Galloway's YouTube channel, the 53-year-old hedge fund manager shared some interesting data points that highlight the importance of tech stocks.

“Since 2014, tech earnings have increased 16% and tech stocks have increased 18%. Non-tech profits have increased to about 4% and stocks have increased to about 6%. So if you look at the long-term evolution of technology since 2005, its share of global GDP has increased from 5% to 15% of global GDP,” Gerstner said.

Gerstner, whose company manages assets of around $10 billion, emphasized in the interview that the risk of not investing in AI is higher than the risk of investing. He addressed market concerns about the ROI of AI spending.

“As a professional investor, we're just trying to determine what level of asymmetry, what level of excitement or exuberance is in these stocks and what we're seeing on a daily basis in terms of consumer usage and revenue,” he said.

For this article, we scanned Altimeter Capital's Q2 portfolio and discussed top AI stock picks. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Further details can be found here).

Amazon.com Inc (NASDAQ:AMZN): E-commerce Strength Drives Market Performance

Amazon.com Inc (NASDAQ:AMZN): E-commerce Strength Drives Market Performance

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Amazon.com Inc (NASDAQ:AMZN)

Brad Gerstner's bet: $277,184,273

Amazon is also one of Altimeter's top AI picks. Brad likes AMZN because of its e-commerce business.

Cantor Fitzgerlad recently initiated coverage of Amazon.com Inc (NASDAQ:AMZN) with an Overweight rating, saying in a broader industry note that many technology stocks remain attractively valued despite strong performance.

“Despite strong performance over the past 18 months, Internet stock valuations are reasonably reasonable and should benefit from expectations of impending interest rate cuts, tempered by slowing revenue growth and the fading benefits of widespread cost cuts,” Cantor said.

AWS revenue growth accelerated from 17.2% in the first quarter to 18.8% in the second quarter, driven by the shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ: AMZN)'s advertising segment reported over $2 billion in year-over-year revenue growth, indicating significant potential for video advertising and opportunities within Prime Video offerings.

As with other technology companies, fears of high capital spending are holding investors back. Amazon.com Inc (NASDAQ:AMZN)'s spending is expected to increase due to its Project Kuiper broadband project and AI growth. Investors are still considering whether AI monetization and ROI will happen any time soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a decline in consumer spending, particularly on higher-priced items like electronics and computers.

Based on Amazon.com Inc (NASDAQ:AMZN)'s Q3 forecast, revenue growth would be 11%. The stock trades at 35 times its Wall Street earnings estimates for fiscal 2025. This shows that the stock is fairly valued and investors seeking strong growth could look elsewhere.

Hayden Capital stated the following about Amazon.com, Inc. (NASDAQ:AMZN) in its report. Investor letter Q2 2024:

“Our portfolio is still recovering from the downturn in 2022, although we have made significant progress over the last two years. While this experience taught us many lessons, this fault also presented a wealth of opportunities that we continue to utilize today

Some of our biggest winners over the last two years have been “re-acceleration” stories. These are cases in which once fast-growing companies suddenly hit the brakes in a weak economy. There can be several reasons for this: customers withdraw during a recession, the company proactively cuts growth spending as a precaution, costs need to be reduced and the company needs to be right-sized to become profitable quickly, or many other reasons.

But the commonality seems to be that as soon as growth stops, the market narrative suddenly changes from positive to “This company is finished.” They are no longer just valued for many years of rapid growth, but are now valued like a mature company that will never achieve significant growth again. But often neither scenario is true, and the ultimate future path lies somewhere in between.

I find it fascinating that this possibility even exists. Especially because it seems to happen in every bear market – perhaps an indication that it is hardwired into human nature (and therefore persistent and likely to be broken down throughout an investor's career). For example, I have given the examples of Amazon.com, Inc (NASDAQ:AMZN) stock performance in our Q1 2022 letter (please re-read this article for more context; LINK)…” (Click here to read the full text)

Overall, Amazon.com Inc (NASDAQ:AMZN) ranks 6th on Insider Monkey's list of the stocks Top 10 Most Popular AI Stocks by Brad Gerstner. While we recognize Amazon.com Inc (NASDAQ:AMZN)'s potential, we believe AI stocks have more promise to deliver higher returns, and within a shorter time frame. If you're looking for an AI stock that has more promise than AMZN but trades at less than 5 times earnings, check out our report on it cheapest AI stock.

READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these stocks.

Disclosure: None. This article was originally published at Insider monkey.

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