Billionaire investor Kenneth C Griffin runs one of the most successful hedge funds in the world. As the founder and CEO of Citadel with a majority stake, Griffin has a net worth of $38.4 billion, making him one of Earth's wealthiest people.
His open-mindedness to various asset classes and love for math, evident from his quantitative investing approach, has helped Citadel generate around $74 billion in net gains since its incorporation in 1990.
Although Griffin could be more vocal about his trades and strategies, his approach reveals patterns of high-frequency trades backed by complex algorithms, which he also uses to manage the risks associated with these trades.
With a tech-heavy portfolio north of $103 billion, Citadel has consistently outperformed the S&P 500 index. Griffin manages his extensively diversified portfolio of over 6,000 holdings by working with investment professionals and industry experts. He employs a market-neutral approach to match his bullish trades with the bearish ones to generate results uncorrelated to markets.
Over the last two quarters, starting Q4 2023, Griffin bought over 4 million shares of Amazon to hold a total of 6.58 million shares of the trillion-dollar company, up from 1.9 million shares in Q3 2023. Amazon currently makes up 1.41% of Citadel's portfolio.
A 200% increase in position could be due to Amazon's rapid growth as it ramps up the infusion of AI in its e-commerce and cloud computing segments. In Q1 2024, the company posted a 13% increase in net sales year-over-year (YoY) to $143.3 billion from $127.4 billion. However, its operating and net income grew three times YoY to $15.3 billion and $10.4 billion, respectively.
Amazon successfully navigated elevated interest rates and a high-inflation environment through several dynamic cost structures, like storing inventory nearer to customers, to bounce back with profits after a gloomy past year. The company has overcome major recessions but has pivoted and sustained over decades.
It is deploying AI on multiple fronts. Amazon leverages AI to lower costs through operational efficiencies, like using AI-determined routes in e-commerce across fulfilment processes for faster deliveries.
Meanwhile, Amazon Web Services (AWS) recorded $25 billion in sales in Q1 at a $100 billion run rate (annualized). It is one segment where Amazon can benefit the most from using AI. The company offers customers a wide range of AI solutions via AWS, from chips to a fully managed service, Amazon Bedrock, for users to tweak large language models for their use. It also focuses on AI-based apps across e-commerce and cloud businesses to assist customers from shopping to reading.
As the world's top cloud provider, AWS holds the potential to become a leading hub for all AI tools with a massive potential customer base, which might turn to AWS for both their cloud computing and AI needs. Analysts see Amazon producing $1 trillion in annual revenues by 2028, where AWS would contribute almost $200 billion.
Amazon's advertising efforts have also become one of the primary functions as over 2 million third-party resellers pay the firm to advertise their products to the billions of people visiting the e-commerce website every month. It recorded a 24% YoY increase from ad operations in Q1 to $11.82 billion.
Griffin's long-standing bullish view in AI tech stocks, including Microsoft, nVidia, and now Amazon, could mean he sees tons of potential for these companies moving forward.
The Amazon stock was trading at $183.54, at a forward price-to-earnings (P/E) ratio of 50.41, as of May 20. While the stock can be expensive for some investors, it is now five times cheaper than last year, when the P/E ratio hovered around 270.
New projects and rising sales on the back of customer demand revival amid a downward inflation trend could fuel a fresh round of stable growth.
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