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Is Cathie Wood’s Heavy Investment in Amazon a Signal for Investors to Jump In?

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Cathie Wood Invests Big in Amazon: A Closer Look at the E-Commerce Giant

Cathie Wood has gained attention for her investment firm, Ark Invest, mainly due to its impressive performance from 2017 to 2020 with the Ark Innovation ETF (NYSEMKT: ARKK). However, the ETF has faced significant ups and downs since then—experiencing a 67% drop in 2022, followed by a sharp 68% rise in 2023. Despite a strong market this year, the fund is trading down over 10%.

This month, Wood has sought to improve her ETF’s performance by adjusting her portfolio. One of her significant moves was purchasing 76,505 shares of Amazon (NASDAQ: AMZN), amounting to nearly $14 million on October 8.

Let’s take a closer look at Amazon and examine whether investors should consider following Wood into this stock.

Amazon: A Leader in E-Commerce and Cloud Services

Though many of Ark Innovation ETF’s holdings are hotly debated, Amazon stands out as a well-established leader in both e-commerce and cloud computing. This differentiates it from riskier stocks such as Tesla, Roblox, and Palantir Technologies.

Amazon dominates the U.S. e-commerce market, holding a 38% share, according to Statista. In comparison, its closest competitor, Walmart, has just over a 6% market share. Amazon operates both its own goods sales and a third-party marketplace, also offering logistics services to ensure fast delivery.

Recently, Amazon’s e-commerce sales showed promising growth, with online store revenue increasing by 6% year-over-year to $55.4 billion and revenue from third-party seller services climbing 13% to $36.2 billion.

In an effort to further promote growth, the company is using artificial intelligence (AI) to streamline operations, enhance delivery logistics, and improve listings for sellers. This technological focus positions Amazon well for future success.

Additionally, Amazon is expanding into the pharmacy sector, aiming for same-day prescription delivery across nearly half of the country next year, seizing opportunities as traditional pharmacies close.

A person delivers a package to a home.

Image source: Getty Images.

Turning to cloud computing, Amazon Web Services (AWS) is also a frontrunner, holding roughly 32% of the market. AWS has generated a considerable operating income—$9.3 billion in Q2 compared to $5.3 billion for its e-commerce segment. The growing demand for AI applications is driving AWS’s success.

In Q2, AWS experienced a 19% revenue increase, totaling $26.3 billion, supported by the ongoing cloud migration. The segment’s operating income surged by 72% to $9.3 billion, showing strong financial performance.

Is Now the Right Time to Invest in Amazon Stock?

With significant spending on AI infrastructure, Amazon continues to generate impressive operating cash flow and maintains a strong cash balance. Historically, the company has shown a commitment to long-term investments which have benefited its shareholders, particularly in building its warehouse and logistics capabilities and expanding AWS.

Investors shouldn’t be deterred by rising capital expenditures, as Amazon typically emerges stronger from these phases. Moreover, AWS’s rapid growth reinforces its value for shareholders.

Currently trading at a forward P/E of just over 32 based on next year’s estimates, and with an enterprise value (EV) trading at 14 times its EBITDA, Amazon appears reasonably priced. In previous years, its multiples have been much higher, indicating potential for growth ahead.

AMZN PE Ratio (Forward 1y) Chart

AMZN PE Ratio (Forward 1y) data by YCharts

Considering Amazon’s solid performance on an EV-to-EBITDA basis, which factors in its net cash and excludes noncash depreciation from past investments, I believe this is a sound investment opportunity.

Thus, investors may want to consider following Ark Invest’s lead and invest in Amazon stock for the long term.

Should You Invest $1,000 in Amazon Right Now?

Before making any decisions about buying Amazon stock, it’s worth noting that the Motley Fool Stock Advisor team recently identified ten stocks they believe are better investments at this time. Interestingly, Amazon was not part of this group.

For context, consider that if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, your investment would have grown to an astonishing $826,069.*

The Stock Advisor service offers valuable insights for building a successful portfolio, including regular updates and two new stock picks each month. The service has substantially outperformed the S&P 500 since its inception in 2002.*

See the 10 stocks »

*Stock Advisor returns as of October 7, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Coinbase Global, Palantir Technologies, Roblox, Tesla, and Walmart. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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