When Ken Griffin, founder and CEO of Citadel, makes an investment decision, everyone stands up and takes notice. That's because this investment giant has delivered breathtaking results over time, with Citadel delivering approximately $74 billion in returns since its launch in 1990. That makes it the most successful hedge fund ever.
So it's no surprise that investors are eager to hear about Griffin's latest moves. This superstar investor owns more than 4,000 stocks and funds the Citadel portfolioand more than 19% of the portfolio consists of technology stocks. It's clear that Griffin believes in the potential of some of today's biggest tech companies. And that brings me to one of his final moves.
Griffin increased his position Amazon (NASDAQ: AMZN) by more than 200% in the fourth quarter, buying more than 4 million shares to boost his holdings to about 6.2 million. Amazon's dominance in the two fast-growing sectors of e-commerce and cloud computing and the company's strategy to win in the artificial intelligence (AI) market make this seem like a once-in-a-generation gamble. Is it one you should follow? Let's find out.
Amazon's track record
Before we even get to the much-discussed area of AI, let's first talk about Amazon's track record. The company has gradually expanded its e-commerce and cloud computing services, and this has translated into billions of dollars in sales and profits. In fact, Amazon has demonstrated its ability to navigate a tough high-interest rate environment. As higher rates and general economic pressure weighed on demand for discretionary items and cloud services, the company revamped its cost structure, focused on efficiency and moved from a rare annual loss to a profit last year.
These efforts should help Amazon control costs and increase revenues. For example, moving from a national fulfillment model to a regional fulfillment model – which brings inventory closer to the customer – has reduced Amazon's costs.
Now, Amazon's focus on AI This already solid growth story can provide impetus across all its activities. Amazon represents a unique AI bet because the company uses the technology to improve its operations to reduce costs and better serve customers – and sells AI products and services to customers through Amazon Web Services (AWS). So Amazon benefits from AI in two ways.
In e-commerce, for example, Amazon uses AI to determine the best delivery routes, an important step in making deliveries cheaper and faster. This pleases Amazon and its customers. And Amazon uses AI in many other ways during the fulfillment process.
From chips to Amazon Bedrock
But AWS could be where Amazon will have its biggest AI victory. AWS posted $25 billion in revenue last quarter, for an annual run rate of $100 billion, and this is thanks to the cloud provider's strengths in AI. Amazon offers customers through AWS AI solutions to meet all their needs, from a wide range of chips to a fully managed service called Amazon Bedrock that allows customers to customize the best large language models for their own purposes.
And Amazon offers a range of AI-powered apps across its e-commerce and cloud businesses to help customers with everything from shopping to coding.
One reason I think AWS could become one of the biggest players in AI over time is that it is by far the largest cloud provider in the world – and this means potential customers are already there, ready to also turn to AWS for their AI needs. Because Amazon has built a deep selection of AI products and services that match the needs of both budget-conscious customers and those with significant budgets, it is ready to deliver.
Should you follow Ken Griffin's move?
Given the increase in Ken Griffin's Amazon investments and his presence in AI technology stocks, he clearly sees this potential. So, should you follow this billionaire investor to Amazon right now?
A look at Amazon's valuation shows it is trading at 41x forward earnings estimates. That is lower than the level that approached 60 at the end of last year. At the same time, the company's revenue is rising and AWS has seen customers emerge from a period of cost-cutting and implement new projects. So it could be that a new wave of growth has just started, and that makes the shares look pretty reasonable at current levels.
And it's important to remember that AI's overall growth story is also just beginning, with the market expected to grow at a double-digit compound annual growth rate to reach more than $1 trillion by the end of the decade.
All of this means that Amazon seems like a once-in-a-generation investment opportunity right now – not just for billionaire Ken Griffin, but possibly for you too.
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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. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has one disclosure policy.
Billionaire Ken Griffin just placed a one-time bet on this stock. Time to buy? was originally published by The Motley Fool
