Billionaires are buying up this millionaire maker stock

Amazon (AMZN 7.09%) has created many millionaires since its public debut. If you had invested $10,000 in the future e-commerce and cloud leader when it went public on May 15, 1997, your investment would be worth $20 million today.

From 1997 to 2023, Amazon experienced a compound annual growth rate (CAGR) of 37% from $148 million to $574.8 billion. This stunning growth was driven by the evolution of its e-commerce market from a simple online bookstore to a digital superstore, as well as the expansion of its cloud infrastructure platform Amazon Web Services (AWS).

Image source: Getty Images.

Amazon is unlikely to repeat these multi-million dollar profits for another two to three decades. It is already the fifth most valuable publicly traded company in the world and owns the leading e-commerce marketplace and the leading cloud infrastructure platform.

However, some billionaire investors are still investing in the stock. In the second quarter of 2024, Bridgewater's Ray Dalio increased his Amazon holdings by 153% to 2.65 million shares, Citadel's Ken Griffin increased his position by 17% to 7.69 million shares, while Tudor's Paul Tudor Jones increased his holdings by 28 % increased to 336,000 shares. Let's take a look at why these billionaires are bullish on Amazon — and whether you should follow their lead.

The near-term headwinds for Amazon are easing

Amazon has experienced a major growth spurt and a dramatic downturn over the past four years. In 2020 and 2021, the pandemic drove more consumers to shop online and prompted more companies to upgrade their cloud infrastructure services. These trends provided strong tailwinds for Amazon's e-commerce and cloud businesses.

But its growth slowed in 2022 as pandemic tailwinds faded. At the same time, inflation largely curbed consumer spending, while rising interest rates caused many companies to limit their cloud spending.

The company also posted a net loss this year due to its investment in the struggling electric vehicle maker Rivian withered.

Data source: Amazon. YOY = year after year.

In 2023, Amazon's e-commerce operations stabilized, but AWS continued to struggle. That was concerning because the company is subsidizing the expansion of its lower-margin e-commerce marketplaces with its higher-margin cloud revenue.

But in the first half of 2024, AWS's growth accelerated again as more companies upgraded their infrastructure to handle the latest AI applications. Amazon has also introduced additional methods for developing new generative AI tools.

Its e-commerce business also began to stabilize as the company increased its delivery speeds, sold more daily essentials and expanded into more overseas markets. The expansion of the integrated advertising business complemented this growth.

Does Amazon still have a bright future?

For the full year, analysts expect revenue and profit growth of 11% and 63%, respectively, as its e-commerce and cloud businesses expand again. For 2025, they expect sales and profits to increase by 11% and 22%, respectively.

Based on these expectations, the stock appears to be reasonably valued at 32 times expected earnings and three times next year's sales. Revenue growth is impressive for a company of this size, and the company has aggressively cut costs to increase its margins.

Amazon faces some short-term challenges. Its e-commerce platform faces strong competition from cheaper cross-border marketplaces like PDDThese are Temu and Shein. And Microsoft remains a strong competitor in the cloud infrastructure and AI services market.

Still, management could use its size to bring more products to market, retain its pricing power and stay at the forefront of the booming e-commerce and cloud infrastructure markets.

Is it the right time to buy Amazon?

Amazon probably won't make multimillion-dollar profits in the next few years, but it's easy to see why its billionaire investors are buying more shares. The core business is strong, headwinds are easing and valuations are attractive.