Cathie Wood and Warren Buffett Both Hold Amazon; One Analyst Sees 26% Upside

Two of the best-known investors on Wall Street, Warren Buffett and Cathie Wood, have almost nothing in common as stock pickers. Yet both own shares of Amazon, the Nasdaq-listed Magnificent Seven member, and that overlap is the starting point for a Motley Fool analysis published in late February 2024.

Buffett's approach is the simpler of the two: companies with strong, consistent cash flow and best-in-class brands. Much of Berkshire Hathaway's portfolio sits in consumer goods, financial services, telecommunications, and energy. Wood's Ark Invest runs the other way, building portfolios of growth stocks in emerging areas such as artificial intelligence, genomics, and crypto.

The positions are small for both. Buffett holds about $1.5 billion of Amazon, roughly 0.44% of Berkshire's total portfolio. Wood owns Amazon in just one of her exchange-traded funds, where it makes up 0.06% of the fund. The article's author, Adam Spatacco, argues the weightings matter less than they appear. In his reading, Wood likely treats Amazon as a hedge against her investments in smaller technology companies, while Buffett has long steered clear of the technology sector, so a modest allocation is unsurprising.

The stock itself has climbed more than 70% over the past year. Even so, Mark Mahaney of Evercore ISI has set a price target of $220, which implies about 26% upside from Thursday's closing price.

The case rests on Amazon's breadth. E-commerce and cloud computing are the main growth drivers, but Prime also delivers movies and television, and the company's advertising business, at $47 billion, is becoming a major force within its ecosystem. Beyond diversification, the author points to artificial intelligence as a possible engine across the business. Amazon made a multibillion-dollar investment in Anthropic, an OpenAI competitor, in September, which the piece suggests could open new synergies within Amazon Web Services. Generative AI use cases, it adds, could lift e-commerce and advertising too.

Mahaney's bullishness, as described, does not rest on revenue alone. The investments Amazon is making across its platform should produce significant margin expansion over the long run, and with it strong, sustained cash flow that can be put back into other growth areas. Spatacco says he agrees that a return to accelerating revenue and cash flow looks achievable.

He also contends that investors may be underappreciating Amazon's potential as an AI leader. At a price-to-sales multiple of 3.1, the stock trades at the biggest discount by that measure among the Magnificent Seven, a gap he describes as a chance to buy at a steep discount to its megacap peers.

The piece carries caveats worth noting. It is opinion and promotional in character, and the Motley Fool's Stock Advisor team did not include Amazon among its current top 10 stock picks. The Motley Fool and Spatacco hold positions in Amazon. What to watch is whether AI actually drives AWS growth and whether revenue and cash flow accelerate as the thesis assumes.