Taking a look at which stocks billionaire hedge funds bought during a quarter is a smart move. One thing it can help you identify is which stock is growing in popularity. Amazon (AMZN +2.23%) was one of the most popular stocks of the quarter, and several major funds took stakes in Amazon.
David Tepper at Appaloosa Management nearly doubled his stake in Amazon during Q1, making it the largest position in his fund. Bill Ackman at Pershing Square Capital Management also added nearly 2 million shares in the quarter. Larry Robbins at Glenview Capital Management made Amazon the fourth-largest position in his portfolio and now holds a 6% stake in his fund.
Amazon was clearly a popular pick in Q1, but the stock has risen about 30% since March 31, when all of these funds had to declare their end-of-quarter holdings. Is it still a buy now?
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Amazon has a bright future
Amazon may be known for its dominant e-commerce business, but the reality is that the most exciting part is its cloud computing business, Amazon Web Services (AWS). AWS is a major beneficiary of the artificial intelligence (AI) build-out because its clients are using as many computing resources as they can get. However, to satisfy the demand, Amazon must spend a ton on infrastructure. It has plans to spend $200 billion on data centers this year, making it a huge bet on AI.
NASDAQ: AMZN
Key Data Points
But that seems to be paying off. During Q1, AWS's revenue rose 28% year over year -- its best quarter in nearly four years. AWS made up 59% of Amazon's total operating profits in Q1, so if AWS can continue growing at a quicker pace than the overall company, Amazon's profits will rise faster than revenue. That's a great place to be, and justifies Amazon's capital investment in AWS.
But is the stock still a smart buy? Amazon has a lot of investments that can affect its net income, so using a cash flow-based metric is a smart move.
AMZN Price to CFO Per Share (TTM) data by YCharts
Q1 saw some of the cheapest price tags using the price-to-earnings-per-share cash flow metric in Amazon's recent history, which could explain the investment activity by billionaires. While it has rallied from its lows, I still think paying less than 20 times operating cash flow isn't a bad price for the stock. As a result, I think Amazon stock is still a worthy buy, even if it's not as good a deal as it once was.
