Retail investors have a great opportunity to join the smart money right now.
Investors looking for stock ideas may be wise to follow what some of the wealthiest money managers in the world are doing. Luckily, it’s easy to see what many of them have been up to recently thanks to required filings from the Securities and Exchange Commission (SEC).
It’s rare for a lot of billionaires to all agree on a single investment. After all, the only way a market works is if there are both buyers and sellers. But every so often a large group of billionaires all agree that a stock is a clear buy.
As of the end of 2024, nine prominent billionaires, including Warren Buffett, disclosed positions in Amazon (AMZN 2.01%). Aside from Buffett, who invests in Amazon through Berkshire Hathaway, the other eight billionaires holding the stock are: David Tepper, Philippe Laffont, Chase Coleman, Stephen Mandel, Dan Loeb, Andreas Halvorsen, Larry Robbins, and Stanley Druckenmiller. Their positions accounted for between 1.8% and 10% of their portfolios as of the end of the year.
The total investment in the stock across those nine holding companies, hedge funds, and family offices is worth about $8.5 billion as of this writing. And that’s after a major pullback in the stock since February, which accelerated at the start of the month. Here’s why the stock is widely owned and why it’s not too late to join the smart money.
Image source: The Motley Fool.
Three unstoppable businesses in one
Amazon isn’t just a single business. If you look under the hood, there are at least three valuable operations within the company.
The first, and most recognizable to consumers, is its online marketplace. Amazon sells items directly to consumers and it offers a marketplace for third-party sellers to reach its massive customer base as well. Tying it all together, Amazon offers Prime, which gives customers fast shipping (typically within one day) for millions of items on Amazon.
Third-party sellers can take advantage of Prime if they store their products in Amazon’s warehouses. Of course, Amazon charges storage and shipping fees to sellers opting into the program on top of the fees it charges for selling on its marketplace. But in exchange, they get to say their item qualifies for Prime shipping, which can significantly boost sales.
The business is absolutely massive. Amazon recorded online retail sales of $247 billion last year, but that’s a relatively low-margin business. Its higher-margin third-party seller services totaled $156 billion, and it’s growing faster than first-party sales. And its subscription revenue, mostly consisting of Prime subscriptions, added another $44 billion to Amazon’s top line.
The second business that continues to delight investors is its advertising business. Amazon includes advertisements all over its marketplace, including search results, product pages, and even its homepage. It also includes video advertisements in its streaming video services. It’s an extremely high-margin business for Amazon, and it totaled $56 billion last year. It also remains one of Amazon’s fastest-growing sources of revenue.
The third business is its cloud computing division, Amazon Web Services, or AWS. Amazon has been a major beneficiary of growing artificial intelligence (AI) spending over the last two and a half years. While it was initially caught flat-footed by the shift to AI, it’s moved quickly to catch up, resulting in accelerating revenue growth for the business. It generated $108 billion in revenue for the business last year.
All of these businesses are operating successfully, showing expanding operating margins as they scale. Amazon has invested heavily in improving the margin of its marketplace business, overhauling its logistics operations, and it’s paid off with rising operating earnings for its North American retail business. The company produces tens of billions of dollars of free cash flow and it continues to reinvest in growth opportunities.
Image source: Amazon.
The massive opportunity for investors right now
There’s no doubt Amazon will get hit by the rising global trade tensions. Both it and its third-party sellers source products from all over the world, particularly from Asia, which was one of the hardest hit regions in Trump’s tariffs announced earlier this month.
But Amazon isn’t the only retailer that will have to face the challenging economic environment. The company is well-positioned to win market share going forward by offering better service and potentially better pricing. As mentioned, Amazon overhauled its logistics network to expedite shipping speeds and reduce costs. That’s helped it increase its operating margin, giving it much more room to take market share in the face of challenges for the entire retail industry.
As founder Jeff Bezos is famously quoted as saying, “Your margin is my opportunity.”
On top of that, Amazon’s still seeing supply constraints for AWS. It’s investing over $100 billion in capital expenses this year to take advantage of the massive opportunity it sees from growing AI spending. It’s also designing the next generation of its own AI accelerator chips for training and inference, developing its own foundation model for developers to build on, and adding new software and AI tools to its service offering.
Amazon’s unlikely to see a significant slowdown in demand for compute amid tariffs. AI has the potential to help other businesses lower their operating expenses, and if tariffs start hitting their revenue or gross margins, they may double down on investments in AI.
That means the current sell-off in the stock could be a great buying opportunity for investors. The stock is down more than 25% from its all-time high from earlier this year as of this writing. It trades for a P/E ratio unseen in the last 15 years. It wouldn’t be a surprise if the billionaires who own the stock take advantage of the pullback as well.