Why Amazon Is a Hot Stock Ahead of 2025

When it comes to the world of investing, CEOs Cathie Wood of Ark Invest and Warren Buffett of Berkshire Hathaway often dominate the headlines. However, their investment strategies and the reasons for their popularity differ greatly.

Wood often invests in growth stocks, spotlighting new technologies and speculative opportunities, while Buffett emphasizes fundamental metrics—like cash flow and earnings—for long-term success.

Despite these contrasting approaches, both investors share an interest in Amazon (NASDAQ: AMZN). Let’s explore why now might be an excellent time to consider buying Amazon shares as we look toward 2025.

Preparing for Amazon’s Growth in 2025

With 2025 approaching, many investors are rebalancing their portfolios—realizing profits from high-flying stocks to reinvest in potential winners.

I believe Amazon stands out as one of the strongest artificial intelligence (AI) investments as we head into next year. Known mainly for its e-commerce and cloud services, Amazon also has a growing subscription service (Amazon Prime), a streaming platform (Prime Video), and a solid advertising business.

Every revenue source is set for noteworthy growth in the fourth quarter. As businesses revise financial forecasts and shoppers hasten their holiday purchases, Amazon is in a prime position for gains.

Image source: Getty Images.

When Amazon reports its fourth-quarter earnings in early 2025, I expect to see significant increases in sales from Amazon Web Services (AWS), as companies ramp up AI initiatives. Additionally, the e-commerce and subscription sectors may experience boosts due to year-end sales trends.

Amazon’s Strong Cash Flow

Beyond its diverse offerings, another factor that makes Amazon attractive is its robust profitability.

Image source: Amazon Investor Relations.

Over the past year, Amazon has greatly improved its free cash flow, enhancing its balance sheet with $87 billion in cash and equivalents. This allows the company to reinvest in high-growth areas like AI and streaming.

Exciting near-term developments could include a new streaming series featuring YouTube star MrBeast and Amazon’s ongoing relationship with AI startup Anthropic, an essential component of AWS.

Valuing Amazon’s Stock

Valuing Amazon can be tricky, as various factors like inflation and interest rates influence its businesses, leading to frequent fluctuations in its growth rates.

Consequently, traditional valuation models, like price-to-earnings (P/E) or price-to-sales (P/S), might not apply best. I prefer to look at Amazon’s price-to-free-cash-flow (P/FCF) ratio instead.

AMZN Price to Free Cash Flow data by YCharts

As shown in the chart, Amazon’s P/FCF of 57 is significantly lower than its 10-year average of roughly 81. This discount is noteworthy because Amazon is now larger and more diversified than it was a decade ago. The company also stands to leverage AI in unique ways, thanks to its vast ecosystem.

To me, Amazon shares appear to be an attractive investment opportunity for those with a long-term outlook.

Is Amazon a Smart Investment Right Now?

Before diving into an investment in Amazon, it’s wise to consider the following:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. 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.