Contrasting Investment Strategies: Wood vs. Buffett on Amazon

Ark Invest CEO Cathie Wood and Berkshire Hathaway CEO Warren Buffett exemplify two very different investment philosophies. Wood’s firm provides investors access to a range of exchange-traded funds (ETFs) that often focus on speculative, unprofitable companies. Her approach hinges on pursuing high-risk, high-reward opportunities in sectors like artificial intelligence (AI) and biotechnology.

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Buffett, on the other hand, seeks out businesses with reliable cash flow and strong brand recognition. He gravitates towards established sectors such as insurance and consumer goods, steering clear of the more volatile technology landscape.

Despite their differing strategies, both Wood and Buffett hold shares in a notable “Magnificent Seven” tech stock: Amazon (NASDAQ: AMZN). Although it isn’t pivotal for either portfolio, its presence indicates some alignment in their views on the tech giant.

Is it a suitable time to invest in Amazon alongside Wood and Buffett? Continue reading to find out more.

Technology Stocks Facing Major Challenges

The tech sector has encountered a rough beginning to the year. New tariffs, inflation worries, and recent perplexing comments from Federal Reserve Chairman Jerome Powell have left many investors unsettled about the economy’s health and future. In response, many are liquidating stocks and building cash reserves for uncertain times ahead.

^IXIC data by YCharts

Particularly hard hit are AI stocks, including Amazon, which have faced significant downturns as shown in the chart above. As of March 26, Amazon’s stock price decreased by 6% for the year, slightly lagging behind the Nasdaq index’s performance.

Image source: The Motley Fool.

Amazon’s Business Resilience Amid Declining Stock Prices

Despite the recent stock sell-off, the fundamentals of Amazon’s business remain strong. In the previous year, revenue for Amazon Web Services (AWS) grew by 18% year over year to $107 billion. This growth is particularly significant for two reasons. First, AWS is Amazon’s most lucrative segment, and with the rising demand for cloud infrastructure driven by burgeoning AI needs, its operating income soared by 62%. These trends indicate that Amazon’s investment in AI is paying off with increased revenue and improved profit margins.

Secondly, AWS’s growth rate outpaces Amazon’s overall business growth, which was 11% last year. This distinction positions AWS as a vital category driving Amazon’s expansion.

Image source: Investor Relations.

As Amazon’s free cash flow grows, the company is strategically positioned to invest in new ventures that enhance efficiency across its major business areas. Among these initiatives are efforts to integrate robotics in warehouses and develop custom silicon chips to compete with Nvidia. These strategies have the potential to boost performance in both e-commerce and cloud computing sectors, confirming a bullish outlook for the company’s future growth.

Amazon Stock: A Long-Term Buy Opportunity

From a macroeconomic perspective, it’s not surprising that Amazon’s shares are experiencing a decline alongside other mega-cap tech stocks. However, specific concerns driving Amazon’s stock downturn don’t seem justified. While tariffs might raise prices and potentially impact demand, assuming a sequence of detrimental events is overly pessimistic.

Moreover, Amazon’s leadership has reiterated its commitment to investing in AI throughout the year despite Wall Street’s mixed sentiment regarding the economy.

AMZN PE Ratio (Forward) data by YCharts

Currently, Amazon’s stock trades at a discount relative to its historical valuations. Its forward price-to-earnings (P/E) ratio stands at 31.7, close to a three-year low. This pricing offers a prime opportunity for investors to consider purchasing shares of Amazon, mirroring the strategies of Buffett and Wood.

Is Now the Right Time to Invest $1,000 in Amazon?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Adam Spatacco holds positions in Amazon and Nvidia. The Motley Fool has investments in and recommends Amazon, Berkshire Hathaway, and Nvidia. For more details, please review our disclosure policy.

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