We recently compiled a list of the 10 Most Owned Stocks by Hedge Funds Right Now. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other stocks owned by hedge funds.
Wall Street stocks surged this month after the Federal Reserve released minutes of its September meeting, which resulted in the first interest rate cuts in over four years. The details disclosed a ‘substantial majority’ of central bankers backing the 0.5 percentage-point cut, raising optimism among investors for further cuts ahead.
The broader market hit record highs on October 11, driven by several financial stocks reporting stronger-than-expected results during the recently concluded quarter. Another factor encouraging investors has been the downturn in US inflation, which fell to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate. This has raised hopes of a quarter-point cut in the central bank’s next meeting in November.
However, some analysts warn against diving into stocks after interest rate cuts, citing uncertainty around the upcoming presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider in early September discussed historic patterns in US markets towards the end of the third quarter and the beginning of the fourth.
She noted how the market performs well between June and August due to thinner volumes when traders are on vacation, while volatility picks up with an uptick in activity after they return to their desks in September. However, during the election year, this volatility peaks around mid-October, instead of September, according to Young Thomas.
Fundstrat Global Advisors’ co-founder, Tom Lee, has also cautioned investors against election-related uncertainty. Here is what he stated in an interview with CNBC late last month:
This Fed cut cycle I think is setting the stage for markets to be really strong over the next one month or next three months. But, what the stocks do between now and let’s say election day, I think is still a lot of uncertainty. And that’s the reason why I’m a little hesitant for investors to dive in.
Earlier that month in the weeks leading to the interest rate cuts, Lee, who is generally bullish on the stock market, forecasted a 7-10% dip between September and October amid nervousness around the presidential elections. However, Lee urged investors to ‘buy the dip’, indicating that he sees the likely fall as an opportunity to buy stocks while they trade for a lower value.
Adam Turnquist from LPL Financial also anticipates seasonal volatility in the weeks ahead but reiterated what Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes. Turnquist advises investors not to readjust their existing portfolios because seasonal volatility has short-term effects and is difficult to forecast.
With that said, let’s now shift focus to hedge fund sentiment on the stock market and discuss some of the most widely held stocks by hedge funds.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
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 Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is an American multinational technology company headquartered in Seattle, Washington. It engages in e-commerce, online advertising, cloud computing, artificial intelligence, and digital streaming. According to Insider Monkey, Amazon is the most owned stock by hedge funds right now. As of Q2 2024, 308 hedge funds held stakes in the company.
During Q2, the company posted a robust revenue of $148 billion, up 11% from last year. Operating income for the quarter also soared 91% to reach $14.7 billion. AWS revenue grew 18% to a total of $26.3 billion. The segment now has an annualized revenue run rate of over $105 billion. The advertisements segment continued its impressive run, with revenue crossing the $2 billion mark during the quarter. Amazon has now earned over $50 billion from advertising revenue over the last 12 months.
The company has been spending heavily on capital expenditure and has incurred $30.5 billion during the first half of the year. The figure is expected to be slightly higher during the back half of 2024, fueled by the need for AWS infrastructure as demand surges for both generative AI and our non-generative AI workloads. The company’s leadership is optimistic about the long-term impact AI investments will have on its business.
Wall Street analysts also remain bullish on Amazon. There is a consensus among them on the stock’s Buy rating with a share price upside potential of 18%. There is good reason for their optimism, given the strong demand anticipated for AWS. The segment’s backlog was up 19% from last year to $156.6 billion at the end of Q2. It is also seeing improved profitability, having jumped from the mid-20% range in 2023 to over 30% this year as Amazon eliminates inefficiencies and clamps down on costs.
Having said that, there have been some investor concerns stemming from the fluctuating operating margins of AWS. However, that is likely due to the investments that the company has been making to improve efficiency and build new products.
Overall AMZN ranks 1st on our list of the most owned stocks by hedge funds right now. While we acknowledge the potential of AMZN as an investment, 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.
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