We recently compiled a list of the 8 Best AdTech Stocks to Buy Now. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other AdTech stocks.
It goes without saying that the advertisement technology industry happens to be an exciting and ever-evolving sector, as digital advertising continues to dominate the market trends and remains at the forefront when it comes to strategic marketing. According to industry data by Allied Market Research, the global AdTech market was pegged at $748.2 billion in 2021 and is expected to reach $2.9 trillion by 2031. This demonstrates a CAGR of ~14.7% from 2022 to 2031.
This growth comes off the back of growing digital and internet penetration, increased usage of advanced technology like AI and machine learning, improved prospects for the gaming industry, and growth in social media apps including Facebook, WhatsApp, and others. Some of the top trends dominating the AdTech industry include higher usage of connected TV (CTV) advertising, in-app advertising, and interactive ads.
Growth prospects of the AdTech industry
The AdTech market has been bifurcated into solution, advertising type, size of an enterprise, platform, etc. The AdTech industry includes a wide range of companies and products, such as demand-side platforms (DSPs), supply-side platforms (SSPs), ad exchanges, data management platforms (DMPs), and more. Experts are of the view that the global supply-side platform (SSP) market size should touch ~$117.32 billion by 2033. This means that the industry should compound at ~13.3% from 2023 to 2033. This growth is expected to stem from technological advancements, higher consumer demand, and supportive government policies.
In the same vein, the demand side platform software market size should touch US$120.1 billion by 2033 on the heels of an improved trend of programmatic advertising and, the need for better targeting along with measurement capabilities for online ads. While the AdTech industry seems promising, inclusion of artificial intelligence (AI) makes it even more appealing.
AI’s Role in AdTech – Opportunities and Challenges
Global AdTech industry continues to prepare for the complete deprecation of third-party cookies by Google, which makes up ~65% of the web browser market share. This transition seems to be a critical step for enabling user privacy and data security. Artificial Intelligence, because of its capability to process vast amounts of data, should play a crucial role.
Research suggests that ~54% of businesses believe that AI offers advertising cost savings and efficiencies and ~30% of marketing professionals decided to earmark more than 40% of their marketing budget to campaigns that are AI-executed. The advent of smart speakers, voice search, and podcasting can help advertisers in creating fresh avenues to connect with target audiences with the help of audio and voice technology.
While advertisers can exploit the opportunities available in the AdTech industry, they need to be wary about challenges such as Ad fraud. These frauds are caused mainly because of bot traffic, domain spoofing, or ad stacking. Some other challenges include inventory quality, ad creativity, and brand safety.
AI and ML are revolutionizing digital advertising by enabling advertisers to assess vast amounts of data in real time. As a result, the advertisers can make data-driven decisions for optimizing ad campaigns. Advertisers now use algorithmic advertising, personalization, and performance metrics to maximize ROI.
AI algorithms help in automating media buying, making sure that ads reach the target audience. Personalized ads can be delivered using AI-powered recommendation engines and these engines enable real-time tracking, which can help make quick adjustments to fuel success.
The global AdTech industry is expected to compound in the mid-teens range over the next decade. Given that it’s still early in its growth story, now is the time to look at some of the best AdTech stocks.
Our Methodology
For this article, we selected the holdings of SmartETFs Advertising & Marketing Technology ETF and ranked them in ascending order of the number of hedge funds holding stakes in them. For the purposes, we sifted through Insider Monkey’s hedge fund data for 1Q 2024.
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).
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 302
Amazon.com, Inc. (NASDAQ:AMZN) is a leading online retailer and one of the highest-grossing e-commerce aggregators. The company’s focus areas include e-commerce, cloud computing, digital streaming, and AI.
The stock of Amazon.com, Inc. (NASDAQ:AMZN) came under pressure after the internet giant missed analysts’ expectations on revenues. The company’s revenues fell short by $760 million. This was mainly because of the subdued growth of North American and international retail segments. This slowness in growth offset the accelerating growth of its Amazon Web Services cloud platform.
However, it seems that the knee-jerk reaction that broader markets saw has impacted the shares of Amazon.com, Inc. (NASDAQ:AMZN). The company has given a healthy outlook, with operating income expected to come in the range of $11.5 billion and $15 billion in 3Q 2024. Even at the mid-point, the company should be able to see an 18% YoY improvement. This compares to the analysts’ expectations of ~6.1% earnings growth in 3Q 2024 for S&P 500 companies.
Secondly, Amazon.com, Inc. (NASDAQ:AMZN) is expected to benefit from the opportunities in cloud computing. The company’s management is of the view that most of its customers have ended their cost management initiatives. These initiatives had earlier led to a slowdown in AWS sales growth. With these initiatives coming to an end, Amazon.com, Inc. (NASDAQ:AMZN)’s cutting-edge AI developments should help AWS grow its lead in cloud computing.
The company’s CEO said that the generative AI boom has been prompting more companies to upgrade their cloud services. AWS tends to have much higher operating margins as compared to the company’s e-commerce marketplaces.
Analysts at TD Securities increased their price objective on shares of Amazon.com, Inc. (NASDAQ:AMZN) from $225.00 to $245.00 on 10th July. A total of 302 hedge funds tracked by the Insider Monkey database held stakes in Amazon.com, Inc. (NASDAQ:AMZN), up from 293 in the preceding quarter.
Diamond Hill Capital, an investment management company, released its second-quarter 2024 investor letter and mentioned Amazon.com, Inc. (NASDAQ:AMZN). Here is what the fund said:
“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 AMZN ranks 1st on our list of the best AdTech stocks to buy. You can visit 8 Best AdTech Stocks to Buy Now to see the other AdTech stocks that are on hedge funds’ radar. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering strong 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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