Nvidia was the best performing stock of the year S&P 500 last year. The stock price rose 239% as artificial intelligence (AI) sent Wall Street into a frenzy.
However, several hedge fund billionaires began diversifying away from Nvidia in the fourth quarter, buying shares of Amazon (NASDAQ:AMZN).
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Louis Bacon of Moore Capital Management sold 873,000 Nvidia shares, reducing his stake by 99%. At the same time, he increased his stake in Amazon by more than 1,000%, making it his third largest position.
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Millennium Management’s Israel Englander sold 1.7 million shares of Nvidia, reducing his stake by 45%. At the same time, he increased his stake in Amazon by 1%, making it his fourth largest position (excluding options).
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Steven Cohen of Point72 Asset Management sold 1.1 million Nvidia shares, reducing his stake by 66%. At the same time, he increased his stake in Amazon by 11%, making it his largest position (excluding options).
Englander and Cohen’s businesses are particularly notable because they run two of the most successful hedge funds in history. According to LCH Investments, as of December 2023, Millennium Management was ranked No. 2 and Point72 Asset Management was No. 13 in terms of net profits since inception.
However, investors shouldn’t interpret their trades to mean that Nvidia is a bad investment. None of the fund managers have completely closed their positions in the AI chip maker, but have reduced their holdings and reallocated capital to other AI stocks, including Amazon.
Amazon has a strong presence in three markets
Amazon has three key growth engines: e-commerce, digital advertising and cloud computing. Specifically, Amazon operates the largest online marketplace in North America and Western Europe in terms of revenue, but the company is still gaining market share. Morgan Stanley Analysts expect Amazon to outperform Ali Baba and be the global leader in retail e-commerce sales by 2027.
Of course, its strength in retail has led to Amazon dominating the retail advertising market, making it the third-largest adtech company in the world alphabetis Google and Metaplatforms. However, according to eMarketer, Amazon is gaining market share faster than Meta and Google is actually losing ground.
Finally, Amazon Web Services (AWS) still dominates the cloud infrastructure and platform services market, although it lost 2 percentage points of market share to second place Microsoft Azure in the fourth quarter. This means Amazon is in a unique position to benefit as companies adopt cloud infrastructure to support artificial intelligence (AI) projects.
Amazon uses artificial intelligence to strengthen its market presence
Like many executives, Amazon CEO Andy Jassy sees artificial intelligence (specifically generative AI) as a breakthrough technology. “Generative AI may be the biggest technology transformation since the cloud (which itself is still in its early stages) and perhaps since the internet,” he wrote in his latest letter to shareholders.
Of course, Amazon is using artificial intelligence to strengthen its competitive position in its three main business segments.
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E-commerce: In February, Amazon introduced a generative AI shopping assistant called Rufus. It was originally made available to a subset of US consumers through the Amazon mobile app, but Rufus is now being made available to a wider audience. Think of Rufus as an assistant that answers questions and makes recommendations based on Amazon’s product catalog, customer reviews, and information on the Internet. In addition, Amazon also uses machine learning models to optimize inventory and last-mile delivery, making its logistics business more efficient.
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Digital advertising: Amazon recently launched a generative AI tool that allows brands to create relevant and engaging lifestyle images with their products, ultimately helping them run more cost-effective advertising campaigns. Notably, 75% of media buyers who struggle to create successful campaigns cite generating creative content as their biggest challenge. Amazon solves this problem with its new AI-powered image generator.
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Cloud computing: Amazon Web Services ranked third in generative AI market share last year behind OpenAI and Microsoft, but product development at all levels of the AI stack could help it gain traction. At the infrastructure level, custom chips for AI training and inference offer a cheaper alternative to Nvidia GPUs. At the platform level, Bedrock enables companies to develop custom generative AI applications. And at the application level, Amazon Q automates tasks for non-technical employees and software developers.
Investors should watch AWS closely. Amazon is predicted to gain market share in e-commerce and digital advertising, but Microsoft has quickly emerged as a formidable competitor in the cloud, thanks in part to its exclusive partnership with OpenAI.
Amazon is a good stock to buy right now
According to Straits Research, online retail sales will grow by 8% annually until 2030. Meanwhile, Grand View Research expects digital advertising and cloud computing revenues to grow 15% and 14% annually, respectively. Finally, Bloomberg estimates that spending on generative AI will grow 48% annually over the same period.
Overall, Amazon has a good chance of achieving double-digit sales growth by the end of the decade. In fact, Wall Street expects the company to grow revenue by 11% annually over the next five years. In this context, the company’s current valuation of 3.3 times sales seems appropriate. Patient investors should feel comfortable taking a small stake in Amazon today.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Alibaba Group and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia and Buying This Artificial Intelligence (AI) Stock Instead was originally published by The Motley Fool