Billionaires Are Quietly Loading Up on Amazon While It Trades Like a Value Stock

Recent 13F filings reveal that a flurry of top hedge fund managers bought the same "Magnificent Seven" stock during the second quarter: Amazon (NASDAQ: AMZN). These purchases by Stanley Druckenmiller, Peter Thiel, Seth Klarman, and David Tepper are more than coincidental portfolio adjustments.

I think this collective bet on Amazon underscores a recognition that the company is evolving far beyond its e-commerce roots into a platform business positioned for durable growth. What unites their thinking is a keen focus on emerging businesses that compound through technological leverage, cash generation, and competitive advantages that others in the big tech ecosystem struggle to replicate at scale.

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Converging on diversification

These hedge fund managers all share a preference for companies that blend defensive cash flow with offensive growth engines. Druckenmiller has long favored asymmetric upside in technology leaders while Thiel prioritizes network effects and monopoly-like businesses. Klarman tends to seek a margin of safety in undervalued assets while Tepper is always on the hunt for cyclical recoveries with secular tailwinds. Amazon satisfies each of these criteria.

Amazon's strength in artificial intelligence (AI) stems from its cloud computing division, Amazon Web Services (AWS). AWS provides a computational backbone for training and deploying AI models at a global scale. Beyond this, Amazon's logistics network, advertising platform, and subscription services (Prime) create a reinforcing ecosystem: Data from retail and enterprise customers improves ad targeting, fulfillment efficiency lowers delivery costs, and cloud infrastructure monetizes the resulting intelligence.

The company's diversification is the subtle strength here. Retail shoppers generate order volume, which helps Amazon build relationships with its customers. Advertising extracts high-margin revenue from these relationships while AWS delivers operating leverage. As a result, the company is able to reinvest in emerging efforts across robotics and custom silicon -- helping reduce dependency on external suppliers and manufacturers. Amazon's multi-legged stool reduces the risk of a single point of failure while amplifying returns.

The simultaneous buying by all these billionaire investors suggests they saw the last few months as a window where the market remained distracted by near-term retail pressures from inflation, ultimately obscuring the accelerating contribution from higher-margin, technology-enabled segments.

How should you value Amazon?

Amazon is a tricky stock to assess. While the company's price-to-earnings (P/E) ratio of 21 has compressed over the last year, this multiple could still appear elevated relative to more traditional industrial or retail peers. I think viewing Amazon through the lens of enterprise value (EV) relative to operating cash flow (OCF) paints a much different picture -- one in which the stock actually trades near historically low levels.

Operating cash flow better captures the real economic output of a business before the distorting effects of depreciation, stock-based compensation, and capital expenditures (capex). As the chart below illustrates, Amazon's ratio of enterprise value to operating cash flow currently hovers around 17, well below its 10-year average of 26.

Fundamental Chart data by YCharts

Since Amazon continually reinvests to expand capacity, its earnings can lag underlying cash generation. For this reason, the EV-to-OCF ratio better isolates the company's cash-generation potential once growth spending starts moderating or begins to yield higher incremental returns.

Against this backdrop, Amazon starts to resemble a hidden value stock: The market appears to be pricing it as a high-multiple hyperscaler while the cash metrics shown above reveal a business generating substantial liquidity at a discount relative to its long-term trajectory.

Savvy fund managers tend to prioritize cash flow and reinvestment runways over the optics of short-term earnings. I think the purchases discussed above imply that some money managers identified a temporary disconnect between Amazon's reported valuation multiples and the durability of the company's cash conversion.

What catalysts does Amazon have?

Amazon's horizon has several catalysts. Most obvious is AWS, which continues to expand its market share of enterprise AI workloads -- converting accelerating utilization into recurring high-margin revenue. Robotics initiatives should fuel productivity gains across Amazon's warehouses and last-mile delivery operations, helping lower unit costs as volume scales.

Moreover, the company's custom chips business aims to reduce reliance on external silicon designers and creates an additional product line beneath the AWS umbrella. Lastly, the anticipated IPO of Anthropic -- in which Amazon holds a significant equity stake -- should better crystallize the value of its generative AI ecosystem and provide a more visible validation of the company's strategic partnerships.

Taken together, these emerging opportunities support a compelling buy-and-hold thesis for Amazon stock. The company's unparalleled scale advantages, proven reinvestment discipline, and expanding technological moat suggest that disciplined capital will benefit from compounding effects over a long-term time horizon.

The recent moves by several fund managers highlight that the broader market may still be underappreciating the breadth and scale of Amazon's optionality. For investors willing to look past near-term volatility and focus on future cash generation, ongoing diversification, and AI-enabled operating leverage, the stock presents a unique intersection of growth and relative value.

Adam Spatacco has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.